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LONDON (Reuters) - Britain agreed to further dismantle its highly centralized system of government on Thursday, striking a political deal to grant Scotland new tax-raising powers in a move critics fear could trigger the beginning of the end of the United Kingdom.
The deal, unveiled on Thursday after an agreement between all the Scottish chapters of Britain's main political parties, will trigger the biggest transfer of powers to Scotland from the United Kingdom since 1999 when a Scots parliament was set up and will be implemented after a UK-wide election next year.
It is likely to spur demands for similar powers from England, Wales and Northern Ireland, teeing up political uncertainty and heralding an eventual redistribution of power in the world's sixth largest economy to its constituent parts.
Scotland, which already enjoys a large measure of autonomy and voted to reject full-blown independence in September, will get the power to set income tax rates, some influence over welfare spending, and powers to decide how the Scottish parliament and other structures are selected and run.
"This I think is a good day for the UK," Prime Minister David Cameron said, playing down fears from lawmakers across the political spectrum that it could weaken the United Kingdom and was the start of a slippery slope to a break-up.
Nicola Sturgeon, the leader of the pro-independence Scottish National Party (SNP), said the deal didn't go far enough.
"I welcome all new powers," she said. "But 70 percent of our taxes and 85 percent of welfare staying at Westminster is not real home rule," she said, referring to the British parliament.
Under the settlement Scotland will have control over tax revenues worth 20 billion pounds ($32 billion) a year and welfare spending worth 2.5 billion pounds a year.
Part of a power play by Britain's established parties to neutralize a threat from the SNP two months after it lost an independence referendum, the left-leaning opposition Labour party is hoping but cannot be sure it will revive its flagging fortunes in Scotland before next year's UK-wide vote.
Just weeks after seeing their dream of an independent Scotland wiped out in a historic referendum defeat, Scottish nationalists have turned failure into a revival which could transform British politics.
Opinion polls suggest the SNP, which has just six seats in the House of Commons in London, could win more than 50 of the 59 Scottish seats in the UK parliament next year.
Labour, which has relied on Scotland to boost its UK-wide support, would be wiped out north of the border.
Ed Miliband, the leader of Labour, which is narrowly ahead of Cameron's party in UK-wide opinion polls, hopes the deal will resurrect his party's dismal ratings.
"We have listened to the people of Scotland just like we are listening to the people of England and Wales about them wanting more power over their own lives," Miliband said on Thursday.
Cameron said the agreement kept a promise to Scots to give them more powers and would be followed by proposals to only allow lawmakers in the British parliament representing English constituencies to vote on laws affecting only England.
That is something Labour opposes.
"What these proposals will do will achieve a better balance in our United Kingdom, a stronger Scottish parliament with the responsibility for raising and spending money but the responsibility and the accountability that that involves," said Cameron.
Cameron, leader of the ruling Conservatives who only have one British parliamentary seat in Scotland, hopes the new settlement will ultimately hurt the nationalists by making it harder for them to blame the British government for Scotland's problems.
Britain's three main political parties promised to grant Scotland more powers in an attempt to shore up support for the union days before a referendum in September in which Scots spurned independence by a margin of 55-45.
Alistair Darling, a senior Labour lawmaker who led the successful campaign to keep Scotland in the United Kingdom, warned the new deal would need to be carefully implemented so as not to undermine the United Kingdom.
"The majority of people in Scotland voted clearly to stay within the United Kingdom, he said. "I believe the majority in the entire United Kingdom want to see it continue and we must be very careful that we manage this carefully."
Scots nationalists have suggested they may push for another independence referendum if British voters choose to leave the European Union in a 2017 referendum that Cameron has said he will call if re-elected in 2015.
Legislation on Scotland's new powers is due to be drafted by the time Scots celebrate the birthday of their most revered poet, Robert Burns, on Jan. 25.
Additional reporting by Guy Faulconbridge, Kylie MacLellan, and William James; Editing by Giles Elgood