* UK seeks to pass law before May election
* Tobacco firms considering legal options
* Shares in tobacco firms edge lower (Adds reaction, share price)
By Andrew Osborn
LONDON, Jan 22 (Reuters) - The British government plans to introduce a law before May forcing tobacco firms to sell cigarettes in plain packets without branding in England, ending years of debate and lobbying.
The move, aimed at improving public health and cutting the number of child smokers, is likely to crimp tobacco firms' profits and would emulate Australia, which two years ago enacted a groundbreaking law forcing cigarettes to be sold in plain olive green packaging with images showing the damaging effects of smoking.
Cigarette sales have dropped in Australia since plain packaging was introduced on Dec. 1, 2012, prompting Britain to act before its national election in May even as Australia battles international legal challenges from other countries and manufacturers.
Jane Ellison, a junior minister in Britain's health ministry, said introducing plain packaging was "a proportionate and justified response" because of the health risks associated with smoking.
"In doing so we would be bringing the prospect of our first smoke-free generation one step closer," she said in a statement.
The new law, which is likely to be approved comfortably, would take effect in 2016.
The government previously said it wanted to ban cigarette branding but would hold a final consultation, stirring suspicion it wanted to further delay legislation.
Tobacco firms have fiercely resisted the new law, saying plain packs infringe on intellectual property rights covering brands and will only increase counterfeiting and smuggling.
"Legal action is always a last resort but when legislation is published we will be considering our options," said a spokesman for Imperial Tobacco. Philip Morris International , the world's largest tobacco company and maker of Marlboro cigarettes, has already indicated it would be prepared to sue the government.
Shares in tobacco groups drifted down on Thursday morning, with FTSE 100 group Imperial Tobacco down 1.3 percent.
The opposition Labour Party welcomed the move, but criticised the government for moving too slowly after MPs voted for the change almost a year ago. Wales, Scotland and Northern Ireland will need to consent to legislation introduced in England.
Around 3.4 percent fewer cigarettes were sold in Australia in 2013, compared with 2012, according to Treasury Department data. The government had previously withheld data on sales to protect commercially sensitive information, and has yet to release the figures for 2014.
A quintet of tobacco-producing nations -- Indonesia, Cuba, the Dominican Republic, Honduras and Ukraine -- are challenging the Australian law at the World Trade Organization. Hearings are due to begin in May with a decision unlikely before 2016.
Philip Morris Asia Ltd is contesting the packaging issue in the international Permanent Court of Arbitration under Australia's bilateral investment treaty with Hong Kong. The court ruled last year Australia could challenge Philip Morris' right to contest the laws on the grounds the company only bought shares in its Australian arm to bring the case. (Additional reporting by Martinne Geller and Kate Holton in LONDON and Jane Wardell in SYDNEY; Editing by Robin Pomeroy and Ruth Pitchford)