By Gwladys Fouche and Ole Petter Skonnord

OSLO (Reuters) - Norway's $1 trillion sovereign wealth fund, the world's largest, should remain a unit of the central bank, the government said on Friday.

It also said the central bank should get a dedicated committee for monetary policy and financial stability, leaving more time for the bank's board to manage the wealth fund (GPFG).

The proposal comes after a state-appointed commission recommended last year that the fund become a separate entity. The fund has been run by a unit of the central bank since it opened in 1996.

The fund funnels government revenues from Norway's oil and gas production and invests in stocks, bonds and property abroad. Proponents of a change had said it would be better supervised with a board offering more specialised competence on fund management and would alleviate pressure on the central bank.

"Experience has been good and Norges Bank has been a good manager of the fund. Norges Bank has high integrity and broad trust with Norwegian society," Finance Minister Siv Jensen told reporters.

"The fund is managed very well by the central bank. There should be very good reasons for changing something that works well. There is a risk in doing something new, for instance with costs," she added.

Instead of appointing a new board for the fund, however, the government proposed establishing a central bank committee for interest rates and stability in the financial system.

"By moving responsibility for these tasks to a separate committee, the board of the central bank can become more focused on and devote more time to the bank's other tasks, in particular management of the GPFG," the Finance Ministry said.

Under the current setup, the central bank's board manages both monetary policy, financial stability and the fund.

While the new proposal would alter that, the changes would be limited as the central bank governor would lead both the five-member monetary committee and the nine-member central bank board, and the two deputy governors should sit on both panels.

All members of the bank's board, as well those on the committee for monetary policy and stability, should be appointed by the government, the ministry added.

(Writing by Terje Solsvik, editing by Larry King and Angus MacSwan)

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