(Adds final prices on senior and subordinated debt, background and details)

By Jane Baird

LONDON, Nov 4 (Reuters) - Sellers of protection on Icelandic bank Landsbanki Islands LAIS.IC debt will pay around 99 percent of notional value of credit default swaps contracts following Europe's first ever CDS cash settlement auction.

The auction set the value of the contracts on senior debt at 1.25 percent and on subordinated debt at 0.125 percent, administrators Creditex and Markit said on Tuesday.

That is lower than Landsbanki's cash bond prices. Senior bond debt was bid at 2 cents on the euro and offered at 6 cents on Monday, and subordinated debt bid at one cent and offered at 3 cents.

The cash payout on Landsbanki debt will be around $1.78 billion, according to data from the Depository Trust & Clearing Corp., which operates the central warehouse for CDS contracts.

The DTCC has calculated gross notional value of outstanding Landsbanki CDS at $19.2 billion and the net notional value at $1.8 billion after taking into account offsetting positions.

The Landsbanki auction will be followed by similar auctions for Iceland's Glitnir Banki GLB.IC on Wednesday and Kaupthing Banki KAUP.IC on Thursday.

The net notional value of the CDS of all three banks amounts to $7.6 billion and the gross notional value to $71 billion, DTCC data show.