(Corrects comparison figure in 5th paragraph to 77 pct from 23 pct)
STOCKHOLM, March 29 (Reuters) - Sweden's state gambling monopoly should be largely scrapped and replaced with a system under which online gambling companies are licensed and taxed, a government-appointed review will propose this week, according to a source familiar with the matter.
The rise of online betting has eroded the monopoly, established in 1934, with other companies now able to operate easily inside Sweden from abroad.
The government appointed a commission to investigate a licence-based system in 2015, with the aim of bolstering tax revenues and to bring companies under state supervision.
The special investigator leading the review, Hakan Hallstedt, will recommend that online gambling firms pay a tax of 18 percent on gross gaming revenue, said the source, who has reviewed the proposal ahead of its presentation on Friday.
The proposal would allow the percentage of licensed and tax-generating gambling to rise to 90 percent of the Swedish market. According to the Swedish Gambling Authority it now accounts for 77 percent.
By scrapping parts of the monopoly, the centre-left government hopes to bring foreign-based online gambling companies such as Kindred Group and Betsson , which operate from outside Sweden and have taken a growing share of online betting, under its regulatory sway.
Not the entire state monopoly will not be scrapped. Its casinos and lotteries operations, for instance unchanged.
Net gambling revenues for the monopoly amounted to 17.1 billion crowns in 2016, a 2.4 percent rise from 2015, generating 6.4 billion crowns profit to state finances.
Sales on non-regulated gambling in Sweden, such as internet casinos, provided by companies abroad, rose by 16 percent to 5.1 billion crowns ($574 million) last year. The state as yet receives no revenue from those firms.
Swedish households spend on average 2.3 percent of their disposable income on state-regulated gambling, around 6,000 crowns per year.
The gambling monopoly - as well as Sweden's monopoly on alcohol sales - has been a point of conflict with the European Union because of competition rules since Sweden joined the EU in 1995.
The report will be published on March 31. (Reporting by Johan Sennero; editing by Niklas Pollard and Johan Ahlander)