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UPDATE 1-Toyota, Mazda, Denso to form electric vehicle venture - sources

* Toyota agreed to take a 5 pct stake in Mazda in August

* Automakers stepping up electric car plans due to policy pressure (Adds share reaction, background)

TOKYO, Sept 28 (Reuters) - Toyota Motor Corp, Mazda Motor Corp and parts maker Denso Corp are planning to set up a joint venture to develop electric vehicles, sources familiar with matter said.

Toyota, Japan's biggest automaker, agreed to take a 5 percent stake in smaller rival Mazda in August and the two have flagged plans to jointly develop electric vehicle technologies.

A formal announcement on the joint venture will be made later in the day, the sources said, declining to be identified as they were not authorised to discuss the matter publicly.

Global automakers are accelerating their efforts to develop electric vehicles as policymakers in key markets like China demand they shift their product lines to these cars over the next two to three decades.

Toyota said it has been conducting various studies with Mazda to boost their alliance. A Denso spokesman declined to comment. Mazda said nothing had been decided yet.

Shares in Mazda were up 3 percent in morning trade, while those in Denso were up 1.8 percent. Toyota shares were flat. (Reporting by Taiga Uranaka; Editing by Chang-Ran Kim and Edwina Gibbs)