UPDATE 1-Israel Discount chairman asked to step down

(Adds Bank of Israel reaction, background, share price)

JERUSALEM, Nov 1 (Reuters) - Israel Discount Bank (DSCT.TA) chairman Shlomo Zohar had been asked to step down by the bank's controlling shareholders, the Bronfman-Schron group.

Discount, Israel's third largest bank, said in a statement to the Tel Aviv Stock Exchange that Zohar had been asked to leave by the end of 2009 but gave no other details.

Zohar was scheduled to serve until February 2011. He was appointed in February 2006 after the group bought a controlling stake in the bank from the government.

The Haaretz daily cited a source as saying that Bronfman-Schron was dissatisfied with Zohar and wanted him to leave as soon as possible.

The Bank of Israel's banking supervisor said it "knows of no incident in Discount bank that led to this request" that Zohar be asked to resign.

"The banking supervisor is looking into the sequence of events, the conduct of those involved and implementation of the proper rules of corporate governance," it said in a statement.

Earlier this year, the main shareholder in Hapoalim (POLI.TA), Israel's second largest bank, was forced by the central bank to oust Hapoalim chairman Dan Dankner over a dispute that led to its CEO to resign.

The Bronfman-Schron group owns a controlling 26 percent share of Discount, which has struggled more than Israel's other large banks.