* NAMA may return profit to the state - government report
* Minister says accelerated target strikes right balance
* NAMA tasked with developing "Canary Wharf of Dublin" (Adds details, quotes)
DUBLIN, July 16 (Reuters) - Ireland said on Wednesday its state-run "bad bank" would repay at least 80 percent of its senior debt two years earlier than forecast in 2016 and unveiled plans for a new business district to rival London's Canary Wharf.
Seen as a major liability for Dublin's finances until recently, the National Asset Management Agency (NAMA) has been taking advantage of a surge in demand for Irish real estate and expects to pay back half its 30 billion euros ($40.5 billion) of senior debt by the end of the year.
The government said last week it would support an accelerated disposal strategy that would see NAMA, one of the world's largest property groups, offload at least 80 percent of its assets by the end of 2016.
"The advice of some investors was to dispose of all of NAMA's assets in one great big sale and there's an appetite in the market for that now," Finance Minister Michael Noonan told a news conference after publishing a review of NAMA's progress.
"The new redemption target strikes the right balance between reducing debt and maximising the return to the taxpayer."
Established in 2009, NAMA paid 32 billion euros ($43 billion) to purge Irish banks of 74 billion euros of risky loans after a property crash left them near collapse and pushed the country into a three-year EU/IMF bailout that ended last year. Spain created a similar body to clean up its financial sector.
A resurgence of investor confidence paved the way for Ireland to gradually return to bond markets since 2012 and NAMA has also taken advantage of what its chairman has called a "remarkable turnaround" in sentiment. It had its busiest quarter for sales in the three months to end-June.
The "bad bank" has completed asset sales of 16 billion euros so far, focusing initially on its portfolio of properties in Britain. It generated over 5 billion euros from sales in Ireland this year compared to 3.7 billion euros for the whole of 2013.
"DUBLIN'S CANARY WHARF"
Noonan said he had considered bringing forward NAMA's wind-down date to 2018 from 2020 but opted to allow the agency to ease the burden on a slowly recovering construction sector.
NAMA has said it could deliver half of Dublin's housing demand over the next five years to ease concerns over a lack of supply and it fleshed out plans on Wednesday for an ambitious development project on the city's docklands.
At twice the size of the existing Irish Financial Services Centre (IFSC), the adjacent venue for international finance, the two sites combined would equate to 40 percent of the commercial floor space of London's 97-acre Canary Wharf business district.
The investment agency, which has brought big foreign employers like Google, Facebook and IBM to the country, has warned that Dublin badly needs more top-end office space.
Noonan said the docklands space had the potential to add the equivalent of 15 percent of the city's office stock, greater than the 6 percent Canary Wharf represents in London.
"I think it has the potential to be the Canary Wharf of Dublin," Noonan said. "The objective would be to ensure that on that piece, which I believe is extremely valuable, that taxpayers would get a very big payback."
The government review said it was reasonable to expect that NAMA would be in a position to repay its senior and subordinated debt and may also return a profit to the state, an outcome NAMA chairman Frank Daly said he believed would be delivered.
However the review cautioned the targets may not be met if the property market does not perform as NAMA expects.
The commitment to repay the bulk of debt ahead of schedule was also good news for the country's banks and will enhance the potential value of state-owned Allied Irish Banks when the government looks to cut its 99 percent, Noonan said.
Ireland's banks hold the debt supporting NAMA on their balance sheets, a particular drag for Allied Irish which held 15.6 billion euros of the low-yielding bonds at end-2013.
(Reporting by Padraic Halpin; Editing by Janet Lawrence)