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UPDATE 2-Blow to S.Korean carmakers as Kia loses landmark wage dispute

* Seoul court awards payout to Kia workers

* Case seen increasing S.Korean automakers' labor costs

* Kia says expects about 1 trln won in payout due to ruling (Recasts with Kia's expected payout, updates shares, adds quotes)

SEOUL, Aug 31 (Reuters) - South Korea's Kia Motors said it expects to pay about 1 trillion won ($887.11 million) in additional wages and would post a third-quarter operating loss after a court ruled in favor of workers in a landmark labor dispute on Thursday.

Seoul Central District Court gave workers a major, if only partial, victory in their closely watched dispute with Kia, ordering the Hyundai Motor affiliate to pay about 420 billion won in unpaid wages.

But Kia said the additional labor costs arising from the ruling would be more than double that amount, once all its workers' wages were adjusted.

The payout, though significantly less than the roughly 1 trillion won demanded by workers in the six-year legal battle, is a blow to South Korean automakers just as they are battling a sales slump in China amid regional strategic tensions.

"The current operational situation is such that the ruling amount is hard to bear," Kia said in a statement, adding it would appeal immediately

Kia Motors shares fell 3.5 percent and Hyundai Motor was 1.8 percent lower after the ruling, while the wider market fell 0.4 percent.

A labor representative told reporters the court had vindicated workers in the face of Kia's argument that their demands amounted to an attack on Asia's fourth-biggest economy.

"The ruling today confirmed that ... the union can aid the company's development," he said.

The workers in their claim said regular bonuses should be included as part of a base pay used to calculate overtime, compensation for unused annual leave, severance pay and other payments.

The case goes back to an original claim in 2011 of 659 billion won in unpaid wages. With interest it came to more than 1 trillion won.

CHINA TENSIONS

South Korea's car industry association warned the ruling could have far-reaching negative consequences for the sector if it sparked other wage claims.

"As a company which outputs more than one-third of local producton, Kia Motors' wage conditions and operational crisis will spread to other automakers and suppliers, adding more pressure to the crisis in South Koreas auto industry," it said in a statement.

Kia's second-quarter operating profit of 404 billion won was 48 percent down from last year and analysts were expecting the firm to beat that in the third quarter, according to forecasts made before Thursday's court ruling.

South Korean firms like Kia, Hyundai and Lotte have been battered by Chinese boycotts and regulatory pressure over Seoul's decision to deploy a U.S. missile defense system to counter threats from nuclear-armed North Korea.

China says the system poses a threat to its national security.

Hyundai Motor - which together with Kia is the world's No.5 automaker - in July posted its smallest quarterly net profit in five years. Sales from its Chinese factories plummeted 64 percent in April-June alone.

($1 = 1,125.0000 won) (Reporting by Joyce Lee and Hyunjoo Jin; Writing by Jane Chung; Editing by Stephen Coates)