The bank, which is facing similar cases in other countries, said the French judicial process had been highly politicised and that it had not met the basic requirements of the rule of law.

The appeals court decision comes as banks around the world are building up their reserves for litigation risks in the face of investigations ranging from foreign exchange price-rigging to sanctions violations.

France's Socialist government has taken a tough stance on tax evasion, facing falling approval ratings for President Francois Hollande and a public disenchanted about unemployment above 10 percent and a heavy tax burden.

It has stepped up efforts to crack down on citizens with Swiss bank accounts in an attempt to bring to light tax cheats and bolster its tax intake.

The Zurich-based bank was put under formal investigation in July on allegations it laundered the proceeds of tax evasion. Investigators say they consider UBS' case particularly serious because they say its actions lasted from 2004 until 2012.

The French appeals court judges who requested the payment said it reflects the size of the fine UBS could pay if it is found guilty.

UBS had already paid a much smaller 2.875 million-euro guarantee in the case. It appealed in July after judges raised that sum to 1.1 billion - to be paid by Sept. 30, and in one single transfer. The date of the payment should be suspended, as UBS has said it will appeal.

The Swiss bank said it would take the ruling to the French Supreme Court and challenge the judicial process, including the right to a fair trial, at the European Court of Human Rights.

"We continue to believe that this is a highly politicised process that from the beginning of the investigation has not followed elementary facets of the rule of law," it said in a statement.

UBS lawyer Denis Chemla said on Sept. 8 the guarantee demand was "without legal basis" and contested the way it was calculated. The amount came to 42.6 percent of UBS' profits after tax last year and 2.8 percent of its capital, Chemla said.

The French finance ministry said it did not comment on ongoing legal cases.

LEGAL PROBLEMS

The French case is one of several legal problems the bank is facing. It hiked its provisions against future litigation to 1.98 billion Swiss francs (1.29 billion pounds) earlier this year but warned this might still not be enough to cover possible fines and charges.

UBS booked a near $300 million (183.65 million pound) charge in the second quarter mainly to settle claims it helped wealthy Germans dodge taxes. It faces a similar probe in Belgium.

It is also among a handful of large banks regulators are investigating over alleged rigging of the $5 trillion-a-day foreign currency market.

UBS' share price was down 1.4 percent at 1500 GMT (04:00 p.m. BST).

The legal problems have overshadowed a near two-year overhaul to shrink UBS' investment bank.

Retained profits and the withdrawal from riskier activities in its bond-trading arm have helped build a strong capital ratio, which stood at 13.5 percent as of mid-year.

It was not immediately clear about how the 1.1 billion guarantee would be reflected in the bank's accounting.

"It's difficult to know what UBS accounting rules are, but they could probably increase their provisioning by 1.1 billion euros, so that it will have an impact on their capital position," said Shailesh Raikundlia, an analyst at Espirito Santo Investment Bank.

A 1.1 billion euro reduction in the capital could put their cash return to shareholders target at risk as UBS has said it would pay out 50 percent of profit to shareholders as long as its capital ratio stood above 13 percent.

UBS was not immediately available to comment on how the guarantee demand could affect its accounts or capital ratio.

(Additional reporting by Chine Labbe in Paris, and Albert Schmieder and Alice Baghdjian in Zurich; Editing by Andrew Callus and Pravin Char)

By Maya Nikolaeva