UPDATE 1-British Airways, union agree pay deal to settle dispute - source

(Adds BA comment, background on strike)

Nov 22 (Reuters) - British Airways and its pilots' union BALPA have reached an agreement to end a pay dispute that resulted in the first walkout by pilots in the airline's history, a source familiar with the matter said on Friday.

BALPA had written to members saying it had struck a deal with BA over pilot pay and urged members to vote to accept the deal, the source said.

"We welcome this positive step," a BA spokeswoman said.

As part of the agreement, BA agreed to insert an inflation protection clause to its previous pay offer of an 11.5% rise over three years, the Financial Times reported.

The airline also offered improvements to working conditions, rostering and flight bonuses, the report added.

British Airways pilots went on strike for 48 hours in September, grounding 1,700 flights in a dispute.

BA, part of International Consolidated Airlines Group , said in September that the strikes had cost it 137 million euros ($151 million). ($1 = 0.9072 euros) (Reporting by Alistair Smout in London and Rama Venkat in Bengaluru; editing by Jonathan Oatis and Louise Heavens)