(Adds details on transaction in paragraph 2, shareholders in paragraph 5, CEO quote in paragraphs 7-8, details on portfolio and earnings in paragraphs 9 and 11-12)

MADRID, May 16 (Reuters) - Spanish holding company Criteria will become the biggest shareholder in real estate group Colonial via a 622 million euro ($676 million) capital injection, Colonial said on Thursday.

The deal will see Criteria increase its stake to 16.78% from 3% currently, including transferring properties from the portfolio of its subsidiary InmoCaixa.

Colonial said it will issue 87.73 million new shares at a price of about 7.1 euros per share in a transaction unanimously approved by Colonial's board.

It represents a par value of 2.5 euros plus a premium of 4.6 euros per share, Colonial added in a regulatory filing.

Criteria will make a cash payment of 350 million euros and transfer eight properties worth 272 million euros - five residential and three office buildings - in various Spanish cities from InmoCaixa's portfolio.

The share increase means Criteria overtakes Qatar Investment to become Colonial's largest investor. The sovereign wealth fund has a 16% stake while Finaccess has between 12% and 13%, according to Colonial's estimates.

Mainly known for its office investments, the deal will allow Barcelona-based Colonial to diversify into residential property, CEO Pere Vinolas told reporters.

"The evolution of cities is demanding more and more flexible exposure in terms of building uses," Vinolas said.

"This does not mean that we no longer believe in offices," he added.

Colonial's portfolio includes buildings in Spain and France which showed occupancy levels at 97% at the end of the first quarter.

Colonial shares were up 4.15% at the market close after the deal was announced.

Vinolas reiterated Colonial's full-year 2024 earnings per share guidance of between 0.30 and 0.32 euros, in line with 2023.

Colonial said on Monday its net profit in the first quarter doubled to 54.5 million euros from a year earlier, supported by inflation-linked rental income.

($1 = 0.9200 euros) (Reporting by David Latona and Matteo Allievi; Editing by Andrei Khalip, Charlie Devereux and Susan Fenton)