* Increases bid to 9.25 euros per share from 7 euros
* IAG already owns 45.85 pct of Vueling
* Drops acceptance level to 4 percent from 90 percent
MADRID, March 27 (Reuters) - International Airlines Group on Wednesday raised its takeover offer for Spanish budget airline Vueling by almost one third after the Barcelona-based carrier rejected a previous bid.
IAG, which owns British Airways and Spanish flag carrier Iberia and already holds a 45.85 percent stake in Vueling, upped the offer to 9.25 euros ($11.89) per share from 7 euros previously.
It also said it would extend the acceptance period for the offer to 48 days from 39 days and drop to 4 percent from 90 percent the shareholders acceptance level for the bid.
Shares in Vueling surged after the announcement by 8.8 percent at 9.23 euros at around 1605 GMT, following a temporary trading suspension.
Acquiring Vueling would help IAG boost its short-haul business and halt losses in Spain in the face of tough competition from cheaper operators and a deep economic crisis.
The company said on Wednesday that Iberia Chief Executive Rafael Sanchez-Lozano had stepped down after months of strikes at the airline.
Loss-making Iberia plans to lay off over 3,000 workers and cut salaries to stay afloat.
Vueling's board said earlier this month that the 7 euros per share offer did not reflect the value of the company. Shares in Vueling traded at 8.42 euros prior to the trading suspension, having risen 17 percent year-to-date.