UPDATE 1-Amazon launches delivery business for merchants in Australia

(Adds background)

SYDNEY/SAN FRANCISCO, Feb 27 (Reuters) - Amazon.com Inc has launched its signature delivery business for third-party sellers in Australia, the company said on Tuesday, marking the latest phase of its expansion on the continent.

The world's largest online retailer said it would pack and ship products on behalf of Australian merchants through its new Fulfillment by Amazon (FBA) program, and it aimed to launch its fast-shipping club Prime for shoppers by mid-2018, according to a statement.

The move, in line with Amazon's play-book in other countries, underscores how the company aims to speed up delivery for shoppers and make its services more compelling.

Though Australians have shopped on Amazon's international websites for years, the U.S. retail giant opened an Australian operation in December.

The company set up a massive distribution warehouse on the outskirts of Melbourne city, on the country's east coast where four-fifths of the 24 million population live.

The decision to launch FBA in the world No. 12 economy is a show of Amazon's confidence in its main delivery partner, government service Australian Post, which has so far struggled to meet Amazon's shipping time estimates in hard-to-reach parts of the vast country.

(Reporting by Jeffrey Dastin in San Francisco and Byron Kaye in Sydney; Editing by Lisa Shumaker and Stephen Coates)