TAIPEI (REUTERS) - Taiwan will ease rules to allow Chinese banks to buy bigger stakes in local banks and permit more Chinese firms to invest in its financial industry, the island's financial regulator said on Monday, marking a major advance in cross-strait ties.

Taiwan will allow mainland banks to buy as much as 15 per cent in unlisted local banks and financial holding companies, the China Banking Regulatory Commission (CBRC) and the Financial Supervisory Commssiono (FSC) said in a joint briefing.

The stake allowed to be invested in a financial holding's banking unit will be lifted to 20 per cent. The rules will be effective in 60 days.

There were no specific stake limits set for either category previously, but 5 percent was seen as a cap for regulators.

In exchange, CBRC will speed up the review process to allow Taiwan banks to open a second unit in the same city in the mainland, a CBRC official said.

"This is a big breakthrough," said the CBRC official. "We'll see Chinese banks applying for buying a stake in Taiwan banks in future," he said, without offering details.

Moves to bolster ties in Taiwan-China financial sectors have lagged behind similar efforts in manufacturing and other areas owing to Taiwanese concerns over Chinese influence.

China still claims the self-ruled island as its own territory and reserves the right to use military force to reclaim it, though economic ties have broadened rapidly and a free-trade agreement links the two sides.

The higher limits are expected to be well received by some local banks and investors.

Taiwan's banking sector is crowded and highly competitive, with about 37 local banks serving the island's 23 million population.

Taiwan's banking sector share index has surged by more than 20 per cent since November, largely on expectations that cross-straight investment rules would be eased and local banks would be allowed to expand more quickly on the mainland.