UPDATE 5-Amazon raises minimum wage to $15, urges rivals to follow

* Amazon ups wages for 250,000 employees

* Says will lobby in Washington for federal minimum wage rise

* Analysts say move aims to quiet criticism over tax, pay

* $1 billion cost offset by Prime price rise (Adds comments from UNI union, advocacy group, Senator Sanders, updates shares)

Oct 2 (Reuters) - Amazon.com Inc said on Tuesday it would raise its minimum wage to $15 per hour for U.S. employees from next month, bowing to criticism of poor pay and working conditions at the world's second most valuable company.

The increase pushes Amazon's lowest wage above that at Walmart Inc and Target Corp but it is still $7 shy of the average for a non-management worker in transportation and warehousing in the United States as a whole.

Lawmakers and unions have been calling for change at big U.S. corporations, with Democratic Senator Bernie Sanders proposing legislation nicknamed the "Bezos Bill" aimed at making them pay workers more.

"We listened to our critics, thought hard about what we wanted to do, and decided we want to lead," founder and Chief Executive Jeff Bezos said in a statement.

The pay increase, effective from next month, will benefit more than 250,000 Amazon employees in the United States, as well as over 100,000 seasonal employees who will be hired at sites across the country this holiday season, the company said.

The online retailer also said it would now lobby in Washington D.C. for an increase in the federal minimum wage and urged its competitors to follow its lead as the union-led "Fight for Fifteen" movement pushes for higher remuneration.

Christine Owens, executive director at advocacy group National Employment Law Project, said Amazon's call for changes at the federal level was a "significant" move.

"At $7.25, the federal minimum wage is a poverty wage. Having major, profitable employers like Amazon join the fight could help finally unstick it," she said.

Amazon, which became the second company after Apple to cross $1 trillion in market value last month, currently pays around $11 per hour. Analysts said the raise would cost it $1 billion or less annually but would be offset by a recent $20 increase in the cost of its Prime memberships.

"While this is a step forward, it is a long way from where Amazon needs to be," said UNI Global Union, which represents retail employees.

Amazon shares were roughly flat at $2,007.28 in afternoon trading.

WORKER STRESS

Sanders credited Amazon on Tuesday for doing the "right thing" and called on other corporations in fast food, airlines and retail industries to follow the retailer in raising wages.

Workers have been protesting against fast food chains like McDonald's Corp and demanding wage increases since 2012 but conditions at Amazon's warehouses, distribution centers and for its couriers have been drawing media attention and criticism for some time in both the United States and Europe.

Like several of the big U.S. tech firms, Amazon is also facing increased official scrutiny over how much tax it pays.

"With the Trump administration having previously taken aim at Bezos and Amazon, they need to be proactive to position themselves positively in the court of public opinion," said Tom Gimble, CEO of recruiting firm LaSalle Network.

"With many municipalities raising minimum wage over the next few years to approaching $15 per hour, this was not really a stretch for them to do that."

Target raised its minimum hourly wage last year to $11 and promised to raise it to $15 an hour by the end of 2020, while the world's largest retailer Walmart raised its minimum wage to $11 an hour earlier this year, even as both struggled with high transportation and raw material costs.

The company said it would increase its minimum wage for all full-time, part-time, temporary and seasonal employees.

Amazon also raised its minimum wage in Britain to 10.50 pounds ($13.59) an hour for all employees in the London area and 9.50 pounds an hour for staff in all other parts of the country, effective from Nov. 1. (Reporting by Arjun Panchadar and Akanksha Rana in Bengaluru, additional reporting by Steve Holland in Washington; Writing by Patrick Graham; editing by Saumyadeb Chakrabarty and Sweta Singh)