UPDATE 1-Lloyds pays Standard Life Aberdeen 140 mln pounds to settle fund row

(Adds details on legal row, background)

July 24 (Reuters) - Lloyds Banking Group has agreed to pay Standard Life Aberdeen 140 million pounds to settle a dispute triggered by the proposed cancellation of a 100 billion pound asset management mandate.

Standard Life Aberdeen will also continue to manage 35 billion pounds of assets under terms of the settlement, after winning a legal battle in May to stop Lloyds from cancelling the contract early.

Lloyds had argued the 11 billion pound merger of Aberdeen Asset Management and Standard Life in 2017 gave just cause for it to cancel Aberdeen's 2014 contract because it considered insurer Standard Life as a "material competitor".

But after a lengthy arbitration process, a tribunal ruled Lloyds - Britain's biggest mortgage lender and parent of pensions provider Scottish Widows - was not entitled to give notice in February 2018 to terminate the deal.

Under terms of the settlement, SLA will manage about one third of the 100 billion pounds of assets under management on behalf of Lloyds entities until at least April 2022, subject to applicable investment management arrangements, SLA said.

The assets comprise about 30 billion pounds in passive portfolios as well as about 5 billion pounds in real estate funds.

This settlement resolves all outstanding contractual differences between the two companies and they will continue their commercial relationship, SLA added.

Lloyds missed quarterly earnings forecasts in May despite robust underlying profits, hurt by a one-off charge for "volatility" - that included costs linked to the legal dispute with asset manager SLA.

($1 = 0.8037 pounds) (Reporting by Noor Zainab Hussain in Bengaluru, editing by Sinead Cruise)