(Updates with context, details)

WASHINGTON, March 5 (Reuters) - The World Bank on Thursday approved a $1.3 billion loan to help Brazil's environmental management and climate change efforts.

The loan "will support Brazil's ongoing efforts to improve its environmental management system and integrate sustainability concerns in the development agenda of key sectors such as forest management, water and renewable energy," the World Bank said.

Brazil has one-third of the world's tropical rain forests and largest reservoir of fresh water.

But the country has struggled for years to control persistent deforestation in the Amazon rain forest and the Pantanal, the world's largest wetland.

Despite increased policing and fines on products from illegally deforested areas, farmers, ranchers and timber companies continue to move deeper into the forests in search of cheap land.

The loan is to help reduce such unsustainable farming and logging practices as well as land-grabbing by giving local communities preferential treatment regarding forest concessions.

The program will also try to improve Brazil's water and sanitation services, which are one of the main causes of hospitalization in the country with diseases such as dysentery.

Some Brazilian environmental groups had objected to the loan, saying they feared the resources would be used by the government to finance large-scale infrastructure projects in the Amazon.

The government of President Luiz Inacio Lula da Silva has promoted several large dams in the Amazon, including two on the Madeira River.

Conservationists say these projects flood delicate ecosystems and attract settlers and loggers on new roads.

The loan will be disbursed in a first tranche of $800 million and a second tranche of $500 million upon fulfillment of the projects goals.

A second loan is expected to be negotiated in the fourth quarter of 2009. (Reporting by Lesley Wroughton in Washington and Raymond Colitt in Brasilia; editing by Mohammad Zargham)

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