UPDATE 1-Fortum names insider Kuula as new CEO

* Head of Power & Heat division takes over on May 1

* Current CEO Lilius to stay on until retires in December

* Shares up 3.25 percent

HELSINKI, April 7 (Reuters) - State-controlled utility Fortum (FUM1V.HE) named a new chief executive on Tuesday, days after its current CEO said he would step down amid a row over management pay and criticised the government.

Fortum said Tapio Kuula, 51, would assume the post as of May 1. Kuula has led the firm's Power and Heat business since 2000, and overseen Fortum's massive investment programme in Russia.

"I know Fortum and its business well and I have actively participated in the company's strategy development. I believe this is a good starting point," Kuula said in a statement.

The news caps a tumultuous five days for the firm, with both CEO Mikael Lilius and Chairman Peter Fagernas saying they would step down after a raft of critical stories in the local media on the firm's hefty executive pay packages.

At a press conference last week Lilius criticised the state's ownership of the firm, saying its intentions were not clear and accusing it of ducking responsibility on some issues. Finland owns 50.8 percent of Fortum.

News of Kuula's appointment came just two hours before shareholders gathered for Fortum's annual general meeting.

Management pay globally has attracted closer scrutiny as the recession bites and unemployment rises, and it is a hot topic in the Nordic region where taxation has kept the gap between higher earners and the rest of the workforce narrower than in some other countries.

Fortum said Lilius would stay with the firm until he retires in December, focusing especially on the firm's Russian business.

The company's shares rose slightly following the news, trading up 3.25 percent at 14.60 euros at 1032 GMT.

(editing by John Stonestreet)