By Andrew Torchia

DUBAI (Reuters) - Oman's government will limit the number of foreign workers and sharply raise the minimum wage for locals in a drive to increase employment of Omani citizens, state news agency ONA reported.

A statement by the Council of Ministers, carried by ONA and seen by Reuters on Thursday, said the government would aim to limit foreign workers to 33 percent of Oman's total population.

The minimum monthly wage for Omanis in the private sector will jump to 325 rials ($845) this July from the current 200 rials, ONA quoted the council as saying.

Despite its oil wealth, the government is keen to move more Omanis into private employment to avert social unrest and prepare the economy for an eventual fall in oil reserves, which could start later this decade.

Since 2011, there have been sporadic street protests to demand more jobs. The International Monetary Fund estimates unemployment among Omani citizens may have exceeded 20 percent in 2010, though government officials say that estimate was far too high and that the number of registered unemployed was reduced by three-quarters to about 17,000 last year.

The new measures, which are subject to review by the government's Shura Council, could have a major impact on the economy, though in practice authorities may implement them cautiously to avoid disruption.

Around 1.3 million or 39 percent of the population of about 3.3 million are foreigners, most of them workers brought in to do skilled or strenuous jobs in the oil, construction and services industries, according to official data last year. Most are from south or southeast Asia.

Oman's ruler, Sultan Qaboos bin Said, has acknowledged that large numbers of foreign workers are needed for industrial development and construction of a national railway. It would be impossible to find local replacements for many of these workers in the foreseeable future.

So a sudden mass expulsion of foreign workers looks unlikely. The Council of Ministers did not specify a deadline for the 33 percent target to be hit.

But the rise in the minimum wage could affect many businesses in the near term. The Times of Oman quoted the Public Authority for Social Insurance as estimating over 122,000 registered employees would receive higher pay.

The Oman Society of Contractors, the umbrella body for construction firms in the country, asked the government to reimburse companies for additional costs incurred because of the wage hike, the newspaper reported.

The Council of Ministers identified mechanisms that could be used to boost employment for Omanis, including revising the foreign investment law to stop unnecessary recruitment of foreign workers, and changing procedures for registering companies, ONA said.

A team of government agencies will be formed to submit progress reports on moving Omanis into private sector jobs, it added.

(Reporting by Andrew Torchia; Editing by Robin Pomeroy)