TOKYO (REUTERS) - Japan's upper house passed legislation on Wednesday to start the most ambitious reform of its electricity sector since 1951, a process prompted by the Fukushima nuclear crisis that may end with the break-up of powerful regional monopolies.

The reforms, including the establishment of a national grid and the liberalisation of the power market for homes, are central to Prime Minister Shinzo Abe's drive to overhaul the economy, as high energy costs threaten to derail efforts to reverse decades of stagnation.

Regional monopolies, including Tokyo Electric Power Co and Kansai Electric Power Co, supply almost 98 per cent of Japan's electricity and terms for access to their transmission lines make it onerous for new entrants.

Wrenching control of transmission from the monopolies to create a national grid became a big issue after the March 2011 earthquake and tsunami that sparked the Fukushima disaster and highlighted an inability to transfer power to areas suffering shortages.

The power law was passed by Japan's lower house earlier this month and sailed through the upper house with 202 votes in favour and 29 against, a parliamentary official said by phone.

While the energy companies say they support the thrust of the proposed changes, they have repeatedly urged the government to give priority to stable power supplies and say reform should be slowed down if this cannot be guaranteed.

The utilities have resisted attempts since the 1990s to liberalise the industry. The companies and their affiliates have ties with politicians, fund their campaigns and often give government officials executive roles.

"There are quite a few issues to resolve," Makoto Yagi, chairman of the Japan Federation of Power Companies and president of Kansai Electric, said in a statement after the vote.

"In the separation of power generation and transmission, in particular, to ensure stable supplies, arrangements and rules to supplement the split need to be in place," he said.