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BANJA LUKA, Bosnia (Reuters) - The parliament of Bosnia's autonomous Serb Republic approved a bill raising wages by up to 12.5 percent on Wednesday, violating terms agreed under a loan deal with the International Monetary Fund, in a move seen as a sweetener ahead of October elections.

Last week, the IMF Executive Board postponed at the last minute a meeting called to conclude a review of Bosnia's loan programme which would unlock fresh aid, saying its staff needed more time to evaluate recent cabinet decisions to increase spending.

The lender's move came after the Serb Republic government announced it would reduce income tax, raising net wages, while keeping overall pay unchanged, violating a deal with the lender under which it pledged not to increase salaries.

Bosnia's other region, the Bosniak-Croat Federation, has also caused the IMF concern by planning to pass a law next week expanding the rights of veterans from the country's war in the 1990s, a move that has not been agreed with the lender.

In a hastily called session, the deputies in the 83-seat Serb parliament approved the new income tax and wage bills with 44 lawmakers voting in favour. Opposition MPs left the session earlier over an unrelated dispute with the deputies from the ruling coalition.

Finance Minister Zoran Tegeltija denied that the terms of the IMF deal were violated, saying that payment allocations were changed only for employees that receive the lowest wages and who account for 1.1 percent of the total workforce in the region.

"If I have to choose between the IMF and these workers, it's clear what I will choose," Tegeltija told the parliament.

The bills will come into force in August.

The new spending legislation in Bosnia's two regions is widely seen as part of campaigning by ruling parties ahead of the Oct. 7 parliamentary and presidential elections.

(Reporting by Gordana Katana, writing by Daria Sito-Sucic; Editing by William Maclean)

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Reuters