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UPDATE 2-Britain's May sets out vision for frictionless trade after Brexit

* May calls for frictionless trade after Brexit

* Also wants tailor-made trade deal

* May says ECJ cannot be the ultimate arbiter after Brexit

* Calls for new arrangements on data and regulation

* Says financial services must be part of relationship (Recasts with speech)

LONDON, March 2 (Reuters) - British Prime Minister Theresa May called on Friday for a deep partnership with the European Union after Brexit, setting out ambitions for a tailor-made deal with independent arbitration and new arrangements for regulation and financial services.

In an attempt to add detail to Britain's Brexit negotiation, May said the new trading relationship will need binding reciprocal agreements but that British laws need not be the same as the EU to achieve the same regulatory outcomes.

May said that in chemicals, aviation and medicine, Britain would seek to abide by EU regulation and proposed a streamlined customs partnership with the same tariffs at the border for goods sold to the EU.

"We are now approaching a crucial moment," she told ambassadors and business leaders in the Mansion House, the 18th century official home of the Lord Mayor of London in the heart of the capital's financial district.

"We will need an arbitration mechanism that is completely independent, something which again is common to free trade agreements," May said.

She added that financial services should be part of the future relationship and that Britain would need a collaborative and objective framework to oversee financial services trade.

Her lectern featured the slogan, "Our Future Partnership", the title of her speech which rounds off a series of briefings by her ministers on how Britain sees its future outside the EU and its economic architecture after more than 40 years in the bloc.

EU leaders are increasingly frustrated by what they say is a lack of detail from London on what it wants, and the EU's chief negotiator Michel Barnier has warned that time is short to reach a deal by October in time for Britain's 2019 exit.

May, weak after losing her parliamentary majority last year, has struggled to satisfy the demands not only of EU officials but also of the warring factions in her Conservative Party and major businesses which are desperate for clarity.

FIVE TESTS

She said she would be guided by five tests including respecting the result of the 2016 Brexit referendum and reaching a solution that can endure.

"We are close to agreement on the terms of the implementation period which was a key element in the December deal," May said. "Both the UK and EU are clear this implementation period must be time-limited and cannot become a permanent solution."

One of the most difficult Brexit questions is how to avoid a hard border between the United Kingdom's Northern Ireland and the Republic of Ireland.

The EU set out a backup plan in a draft withdrawal agreement this week that effectively would see Northern Ireland remaining part of the EU's customs union.

That could mean that Northern Ireland would have different rules from the rest of the United Kingdom, something May said on Wednesday "no UK prime minister could ever agree to".

"We have been clear all along that we don't want to go back to a hard border in Northern Ireland," May said.

"Just as it would be unacceptable to go back to a hard border between Ireland and Northern Ireland, it would also be unacceptable to break up the United Kingdom's own common market by making a customs and regulatory border down the Irish sea." (additional reporting by Jan Strupczewski in Brussels; Writing by Guy Faulconbridge; Editing by Stephen Addison)