UPDATE 1-Sweden regulator:EU bank union plan could lead to split

(Adds central bank comment, background)

STOCKHOLM, Oct 10 (Reuters) - The head of Sweden's financial watchdog said on Wednesday that European banking union plans risked creating a division between members of the pact and those outside it.

He also cast doubt on the European Central Bank's ability to supervise a sector as large as banking.

"This would be at odds with what we have been working toward for so many years - the creation of a single market," Financial Supervisory Authority head Martin Andersson told reporters.

Andersson stressed that banking supervision should be complemented by a system for dealing with failing banks before being introduced.

European Union leaders agreed at the end of June to set up a single supervisory authority to oversee 6,000 banks in Europe, with the aim of having it in place by the end of the year, although that deadline looks ambitious.

But having a single body supervising all banks across the region, which under the proposals could be the ECB, was problematic, Andersson said.

"This involves a large amount of cases and one probably has to consider how to handle the logistics and how to make these decisions in an informed manner," he said. "That will be very hard, and I think that one may be underestimating the difficulties."

Speaking separately, Swedish First Deputy Central Bank Governor Kerstin af Jochnick told reporters the bank also had questions about plans for a European banking union.

"We understand that one must strengthen the euro zone, but from our point of view there are quite a lot of questions which come up," af Jochnick said.

Swedish banks are active in euro zone countries Finland and Estonia. Finance Minister Anders Borg has also criticised the banking union plans, saying rules should not be applied to these banks by a regulator where Sweden has no say.

(Reporting by Johan Ahlander and Daniel Dickson; Writing by Niklas Pollard; Editing by Hugh Lawson)

((Niklas.Pollard@thomsonreuters.com)(+46 70721 1110)(Reuters Messaging: niklas.pollard.reuters.com@reuters.net))