Japan's Nippon Life Insurance Co has agreed to nearly double its stake in India's Reliance Life Insurance, becoming the latest foreign firm to take advantage of a rule change and raise its sights in a market seen offering rich potential.

Nippon Life, Japan's biggest private life insurer, is paying about 22.7 billion rupees ($342 million) to lift its stake in Reliance Life to 49 percent, the maximum allowed by law, from 26 percent, the firms said on Tuesday. The Indian company is a unit of billionaire Anil Ambani's Reliance Capital Ltd (RLCP.NS).

The Indian government earlier this year moved to allow higher foreign ownership in the $50 billion insurance sector, a business that has been starved of capital. Stymied by restrictions, some foreign insurers had previously exited local joint ventures.

The easing of foreign ownership rules has opened doors for foreign insurers such as Prudential Plc (PRU.L) and Standard Life Plc (SL.L) to take a higher interest in the business in Asia's third-biggest economy, where insurance penetration is low.

Standard Life, which has an insurance joint venture with India's Housing Development Finance Corp Ltd (HDFC.NS), is seeking to raise its stake in the JV to 35 percent from 26 percent.

Meanwhile BNP Paribas Cardif, life insurance joint venture partner of top Indian lender State Bank of India is also in talks to lift its stake to 36 percent.

Shares in Reliance Capital shares rose after the Nippon Life deal to buy more of its insurance arm was announced. By 0252 GMT, they were trading up 2.4 percent at 417.90 rupees.

Reliance Life Insurance will change its name to Reliance Nippon Life Insurance after the deal, which is subject to approval from regulators and is expected to close within the current financial year that ends in March, the companies said.

In a separate deal, Nippon Life had previously agreed to invest 11.96 billion rupees to buy 14 percent more of Reliance Capital's asset management business, taking its stake to 49 percent.