Saudi Arabia has relaxed a 49% limit for foreign strategic investors in shares of listed companies, aiming to attract billions of dollars of foreign funds as the Kingdom opens up the region's largest bourse to a more diverse investor base.

The country has introduced a raft of reforms in recent years to make its stock market, the region's biggest, attractive to foreign investors and issuers.

The move aims to help enhance the market's efficiency and attractiveness and to expand the institutional investments base, the regulator, the Capital Market Authority (CMA), said in a statement on its website.

The Saudi stock market, which opened to foreign investors in 2015, has seen an upsurge in foreign fund flows since the start of the year due to its inclusion in the emerging markets indexes.

"In the beginning of this year, we had only one percent ownership in the Saudi capital market by financial investors, today it is over three percent, that's more than a threefold increase," CMA chairman, Mohammed El Kuwaiz told Reuters in an interview.

"Our hope is that we can see a similar increase in terms of pace and magnitude as we start to create more avenues for foreign investors to come in to the market," he added.

There will be no minimum or maximum ownership limit, although the owners must hold the shares for two years before they can sell.

Kuwaiz said huge demand from non-financial foreign investors pushed the CMA to grant approval on an exceptional basis to a number of strategic foreign investors to increase their holdings in Saudi listed companies. These included transactions at an insurance firm and a local bank.

Foreign investors have been net buyers of Saudi equities over the past few months, with purchases worth 51.2 billion riyals ($13.6 billion) until May 30. They currently own 6.6% of Saudi equities, of which 3.15% is owned by strategic foreign investors.

Local shares were incorporated into the FTSE emerging-market index in March and the MSCI emerging market benchmark in May this year. The country's Tadawul All-Share Index .TASI is up 11 percent year-to-date.

Strategic foreign investors can take stakes in listed companies by buying shares directly on the market, or through private transactions and via initial public offerings.

Asked how this move would reflect on the Aramco IPO, planned for 2021, Kuwaiz said it would assure that the market has the physical regulatory and investor infrastructure to accommodate a company as large and as extensive as Saudi Aramco. ($1 = 3.7500 riyals)

(Reporting by Marwa Rashad; Editing by Saeed Azhar, Louise Heavens and Alexandra Hudson) ((marwa.rashad@thomsonreuters.com; +966114632603 ; Reuters Messaging: marwa.rashad.thomsonreuters.com@reuters.net))