* CFO Lester to quit next year, says time for change
* Departure comes as company faces challenging UK markets
* Needs CFO with unions, government experience - analyst
* Royal Mail to consider internal, external candidates (Adds details, updates share price)
By Esha Vaish
Dec 20 (Reuters) - Matthew Lester has decided to quit as finance director of Royal Mail Plc after more than six years during which he helped steer the company through its controversial privatisation in 2013.
Royal Mail did not give a reason for the planned departure that will take place after its general meeting in July 2017, although Lester said it was time for a change and he was "open-minded" about his next move.
The former British monopoly faces challenging trading conditions in its domestic parcels and postal businesses.
Some analysts have expressed concerns over its progress in areas such as freeing up cash through property sales and modernising its operations, as well as whether it has made enough headway to become more efficient.
It is locked in a battle to win business with new entrants and former customers such as Amazon, which has started its own delivery system, in the overcrowded parcels market.
Royal Mail said this month it expected little or no impact on its operations from a union strike at the Post Office in the week leading up to Christmas, which will be crucial to its performance for the year.
Some analysts have questioned its ability to match a full-year profit consensus after a turbulent first half, where it was hit by a fall in spending on junk mail by companies rattled by Britain's vote to leave the European Union.
Lester's total remuneration package was worth 1.277 million pounds as of the financial year ended March 2016.
Royal Mail declined to give a pay update, although Lester held 31,504 ordinary shares in Royal Mail according to an Oct. 7 filing, which were worth 142,398 pounds at Tuesday's close.
Its stock closed down almost 0.7 percent at 452 pence.
The company said it would consider both internal and external successors to Lester.
"They need someone with experience of working with unions and working with government bodies given the regulatory situation and that'll be your two most important things," Shore Capital's Martin Brown said.
Royal Mail is in the midst of a review by regulator Ofcom, which is looking into whether the company breached competition law, and negotiations with unions over its pension scheme.
In a victory of sorts of the company, Ofcom proposed to maintain its former approach to regulating Royal Mail, after noting improved efficiency, moderate profitability and increased parcels competition.
Before joining Royal Mail, Lester was finance director of ICAP for five years and held a number of senior finance roles at Diageo, including Group Financial Controller. He is also a non-executive director of Man Group. (Editing by Louise Heavens and Alexander Smith)