MELBOURNE (Reuters) - BHP Group has agreed to pay the state of Western Australia A$250 million (£138 million) to end a dispute over royalties paid on iron ore shipments sold through its Singapore marketing hub, the two parties said on Friday.

The State government found in January that the world's biggest miner had underpaid royalties on iron ore shipments sold via Singapore stretching back over more than a decade.

"This settlement resolves the dispute with BHP," Western Australia Premier Mark McGowan said in a statement.

BHP produced 275 million tonnes of iron ore last financial year, making it the world's third-largest producer of the steel-making ingredient after Brazil's Vale and Rio Tinto.

"BHP is pleased that this matter has been able to be co-operatively resolved with the WA Government," Edgar Basto, BHP's head of iron ore, said in a statement.

"Our priority in this matter has been to ensure a constructive and fair resolution without having to resort to lengthy and costly legal proceedings," he said.

BHP reached a deal to pay A$529 million in additional taxes to the Australian government late last year to settle a long-running tax dispute over the miner's Singapore hub on its income from 2003-2018.

(Reporting by Melanie Burton; editing by Richard Pullin)