UPDATE 3-UK's Brown makes fighting unemployment a priority

* Brown's Labour tackles unemployment ahead of election

* Housing, schools and education also targeted

* Opposition condemns "package without a price tag"

(Adds fresh quote from opposition leader Cameron)

By Keith Weir

LONDON, June 29 (Reuters) - British Prime Minister Gordon Brown set out plans to tackle youth unemployment on Monday in a programme for the final months before an election that could end his Labour Party's long grip on power.

Brown pledged 1.5 billion pounds ($2.47 billion) to boost the supply of low-cost housing and a 150-million-pound fund to encourage investment in areas like biotechnology and green industries.

The prime minister is seeking to revive his poll ratings less than a year before a parliamentary election that the centre-right opposition Conservatives are tipped to win by a big margin.

"We are determined to take forward the reforms of the last decade," Brown told parliament.

"Our task after three terms in office is not merely to defend Britain's achievements over the last decade, but to work even harder so as to meet new challenges with the same sense of conviction."

All the main parties have been damaged by a scandal over lawmakers' expense claims but Labour, in power since 1997, has been hardest hit because it presided over a discredited system.

The election is likely to be dominated by debate over how to curb a budget deficit that will reach 175 billion pounds this year, more than 12 percent of gross domestic product, after the government moved to prop up banks and boost spending in the wake of the global economic recession.

"DREAM WORLD"

Opposition leader David Cameron said Brown was in denial over the state of public finances.

"The prime minister is living in a dream world in which spending is going up, investment is going up, infrastructure is being boosted. When is someone going to tell him that he's run out of money?" Cameron said.

The prime minister's spokesman said there would be no increase in total government debt as a consequence of the measures announced. The additional spending announced has been found by shifting cash from one area to another.

Labour says the opposition would make savage cuts in core public services if it won the election. However, Labour has said it will not update three-year departmental spending plans until after the next election.

Keen to stress his party's public service credentials, Brown offered individual tuition for children who fall behind in school and free health checks for the over-40s.

Labour is hoping Britain will start to pull out of its deepest recession since World War Two by the end of the year, boosting voters' morale and making the budget arithmetic slightly less daunting.

However, rising unemployment risks undermining any feel-good factor. Unemployment stands at a 12-year high of 7.2 percent and is expected to rise when students and school leavers are added in the coming months.

People aged under 25 who have been out of work for a year will be guaranteed either a job, work experience or a training place. They will have their benefits cut if they turn down the offer.