MEXICO CITY (Reuters) - An elderly Mexican drug lord convicted for the 1985 murder of U.S. Drug Enforcement Administration (DEA) agent Enrique "Kiki" Camarena will finish his sentence under home arrest, the Mexican government said on Wednesday.

Ernesto Fonseca, alias "Don Neto," has already served 30 years of his 40-year sentence in the Puente Grande prison in the western state of Jalisco, where his Guadalajara cartel operated in the 1980s.

Interior Minister Miguel Angel Osorio Chong said a judge ruled that Fonseca, 85, will be allowed to go home given his age and health problems.

Fonseca's daughter, Yoanna, said in a telephone interview that she believed her father would be going to a house in the State of Mexico, a state neighboring the Mexican capital.

Fonseca was one of the founders of the Guadalajara cartel along with Rafael Caro Quintero and Miguel Angel Felix Gallardo, pioneers in trafficking large amounts of cocaine in alliance with deceased Colombian drug lord Pablo Escobar.

In a magazine interview this weekend, Caro Quintero denied killing Camarena. Caro Quintero was freed from prison by a judge in Mexico in 2013, embarrassing the government and prompting the United States to request his recapture.

(Reporting by Lizbeth Diaz; Editing by Leslie Adler)