By William James and Martinne Geller

LONDON (Reuters) - Britain plans to force tobacco firms to sell cigarettes in plain packets without branding to improve public health and cut the number of child smokers, a government minister said on Thursday, dismaying the industry and delighting anti-smoking campaigners.

The government said it wanted to leave space on cigarette packaging only for graphic health warnings, after holding a short final consultation on the issue, and said the rule could become law within a year.

The move would make Britain the second country in the world and the first in Europe to introduce mandatory plain cigarette packets, which could prompt others to follow suit.

In 2012, Australia enacted a groundbreaking law forcing cigarettes to be sold in plain olive green packaging with images showing damaging effects of smoking such as lung and mouth cancer.

Tobacco is responsible for 6 million deaths a year and the World Health Organisation (WHO) estimates that number could rise beyond 8 million by 2030.

As well as causing cancer and other chronic respiratory conditions, smoking is also a major contributor to cardiovascular diseases, the world's No. 1 killer.

Jane Ellison, a junior British minister responsible for public health, said draft regulations and the results of a short consultation would be published as early as this month allowing enough time for the government to bring in new laws before an election in May 2015.

The government said a review it had commissioned in November threw up compelling evidence that plain packaging would raise public health and reduce the incidence of child smokers.

"It is in my view highly likely that standardised packaging would serve to reduce the rate of children taking up smoking," said Cyril Chantler, a 74-year-old paediatrician and ex-smoker who conducted the review. "The evidence base is modest and it has limitations, but it points in a single direction, and I am not aware of any evidence pointing the other way."

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Moves to ban branding on cigarette packets to make them less appealing to smokers, and above all children, have pitted tobacco producers against governments and anti-smoking lobbyists around the globe.

New Zealand and Ireland also plan to introduce plain packaging while five countries have lodged a complaint with the World Trade Organisation to try to overturn Australia's laws.

Britain's opposition Labour Party welcomed steps towards a ban on branded cigarette packets, but criticised the Conservative-led government for delaying a final decision by holding a consultation.

"Over 70,000 children will have taken up smoking since the government announced the review," Labour health spokeswoman Luciana Berger told parliament. "How many more children are going to take up smoking before this government takes firm and decisive action?"

TOBACCO SHARES DROP

After Thursday's government statement, shares in the two big London-listed tobacco concerns, Imperial Tobacco and British American Tobacco, dropped by about 0.5 percent.

Britain's tobacco market is worth about $28 billion a year, according to Euromonitor International, and Britain collected 8.6 billion pounds ($14.24 billion) in cigarette duty last year.

Chantler said in the report he believed that over time, the prevalence of smoking would fall as a result of restrictions on the size and shape of packages and bans on branding and promotional information.

The industry argues that plain packaging encroaches on its intellectual property and trade marks, and limits trade. It also says that there is no fact-based evidence that the move would reduce smoking - an argument Chantler acknowledges.

Tobacco firms have further argued that plain packaging would encourage counterfeiting and smuggling.

"The government should not rush to proceed without holding the full impact assessment they have promised," Philip Morris said in a statement. "Plain packaging has failed to cut smoking rates, has not deterred youth smokers and has been accompanied by a dramatic growth of the black market."

British American Tobacco and Imperial Tobacco group issued similar statements.

Britain already has strict regulations on how cigarettes can be displayed and packaged, as well as a ban on smoking in public places. Earlier this year, the government prohibited smoking in cars when children were present.

A ban on cigarette branding in Britain will probably crimp industry profits, Morningstar analyst Philip Gorham said, since plain, standardised packages are less likely to command high prices. Japan Tobacco would be hardest hit with Imperial Tobacco and discount brands picking up some market share.

($1 = 0.6012 British pounds)

(Additional reporting by Kate Holton and Kate Kelland; Editing by Mark Heinrich)