By Alastair Macdonald

BRUSSELS (Reuters) - The British member of the EU executive, Financial Services Commissioner Jonathan Hill, resigned on Saturday after having campaigned against Britain leaving the European Union.

Following the referendum vote for Brexit on Thursday, few expected a Briton to retain oversight of the EU banking and finance market that will be a key battleground in negotiations between London and Brussels on dissolving British membership.

European Commission President Jean-Claude Juncker said he was handing the portfolio to Valdis Dombrovskis, who will take it into his brief as vice president for the euro from July 16.

An EU official said the move made it clear that plans for an EU capital markets union would now focus on the euro zone after Hill had worked to ensure new EU rules would not disadvantage London's huge finance industry based outside the currency area.

"It's clear there will be a less clear division between the capital markets union and the euro zone," the official said.

London-based banks and other financial firms are concerned about access to the EU once Britain leaves the single market.

Hill said in a statement a day after British voters backed Brexit in a referendum called by Prime Minister David Cameron: "I don't believe it is right that I should carry on as the British commissioner as though nothing had happened."

Dombrovskis, who as prime minister took Latvia into the euro, and whose current role already oversees Hill's portfolio, said his priority was to maintain financial stability in markets.

Cameron, who will be replaced once his Conservative party elects a new leader, will leave it to his successor to discuss what to do with Britain's seat on the Commission, a British spokesperson said. It retains the right to a seat, along with the 27 other EU states, until it finally leaves the Union.

BRITISH COMMISSIONER

Hill, 54, a lobbyist and former Conservative leader in the upper house of parliament who has become a popular figure among EU colleagues in 18 months in Brussels, was described by Juncker as a "true European" whom he had tried to persuade to stay on.

Hill, a close ally and friend of Cameron, said: "I came to Brussels as someone who had campaigned against Britain joining the euro and who was skeptical about Europe. I will leave it certain that, despite its frustrations, our membership was good for our place in the world and good for our economy."

The distribution of portfolios in the Commission is the job of its president, former Luxembourg premier Juncker, in negotiation with the leader of the member state nominating their commissioner. Other member states also have a say, and new commissioners must face hearings in the European Parliament.

It is unclear what a new British commissioner can do in the final years of Britain's membership. EU officials say it is inconceivable they will have a major policy-making role. Brussels wits talk of them being made "Commissioner for Ballet".

Cameron's spokesperson said: "It will be for the next prime minister to decide, following discussions with European partners, what role the UK plays in the European Commission."

Hill's appointment to the finance job in 2014 was a peace offering from Juncker to Cameron, who had tried to block the Commission president's own appointment that year. It was viewed with suspicion by euro zone bankers keen to challenge London's dominance as Europe's financial capital.

Juncker said on Saturday: "I wanted the British commissioner to be in charge of financial services, as a sign of my confidence in the United Kingdom's membership of the European Union. To my great regret, this situation is now changing."

(Editing by Hugh Lawson and Jane Merriman)