MADRID (Reuters) - Banco Sabadell (>> Banco de Sabadell SA) will close 11 percent of its bank branches in Spain next year, a source at the bank said on Friday, as Spanish lenders continue to slash costs to offset eroded margins.

The 250 branches Spain's fifth largest bank will close are in addition to 92 branch closures over this year, the source said, and would enable Sabadell to adapt to increasing consumer demand for online services.

The closures will lead to the relocation or early retirement of 800 employees, the source said. Spanish newspaper Expansion reported, however, that all would be cut from the workforce.

Almost all of Spain's leading banks have started trimming their workforces and branch networks in response to rock-bottom interest rates and aggressive domestic competition that have hit their profitability, now a third of what it was before the country's financial crisis.

Spain's branch network has been denser than in much of the rest of Europe - there was one branch per 1,452 people in 2014, against a euro zone average of around 2,000 - so they are an easy target for banks looking to cut costs.

Banco Santander (>> Banco Santander, S.A.), Spain's largest bank, has cut 450 branches and over 1,000 jobs this year. Second-largest BBVA (>> Banco Bilbao Vizcaya Argentaria S.A.) expects to reduce its workforce by 2,000 employees this year and it says it is likely to fall further in 2017.

(Reporting by Angus Berwick; Editing by Adrian Croft)