By Tim Kelly

TOKYO (Reuters) - Washington said it will limit legal protections and benefits to some U.S. civilian contractors working for the military in Japan in a bid to assuage local anger following the killing of a Japanese woman on Okinawa island.

Japan and the U.S. agreed on Tuesday to tighten eligibility for the U.S.-Japan Status of Forces Agreement (SOFA) signed in 1960, which sets out the legal status of U.S. bases and military personnel working in Japan.

Under certain cases, such as actions committed during official duty, it protects personnel from being pursued by Japanese courts.

"This will without doubt reduce the number of civilian contractors covered by the agreement," Japan's Minister of Foreign Affairs Fumio Kishida said in Tokyo.

Kishida spoke after he and Japan's Minister of Defense Gen Nakatani met with U.S. Ambassador Caroline Kennedy and U.S. Air Force Lieutenant General John Dolan, commander of U.S. forces in Japan.

SOFA also exempts personnel from requiring visas while in Japan, and has been criticized because it has been used by the U.S. military to ship people home before capture by the Japanese police. Civilian contractors are typically included under the agreement, which gives them access to housing benefits and other perks that can represent a substantial chunk of their income.

A 32-year-old American civilian working at a U.S. Okinawa base, Kenneth Franklin Shinzato, who was arrested in May in connection with the killing of a local woman, Rina Shimabukuro, was included under the status agreement despite holding a Japanese visa.

The United States and Japan said on Tuesday that U.S. contractors with Japanese visas will no longer qualify and that talks will continue to define which contractors will still be included under SOFA in future.

The killing in Okinawa and subsequent arrests of military personnel for drunk driving have dented local relations and spurred large demonstrations calling for the removal of U.S. bases threatening to halt plans to relocate some Marine units away from populated areas of the island to more remote bases.

Okinawa hosts 50,000 U.S. nationals, including 30,000 military personnel and civilians employed at U.S. bases.

The site of the bloodiest fighting between U.S. and Japanese forces in World War Two. Okinawa remained under American occupation until 1972, with around a fifth of the land area still under U.S. military control.

(Reporting by Tim Kelly; Editing by Michael Perry)