MADRID, Feb 24 (Reuters) - Telefonica plans to set up a separate unit to handle the expansion of its fibre network into scarcely populated areas in Spain with outside investors, its Chief Operating Officer Angel Vila told reporters on Thursday.

Telefonica already has some 2.5 million homes connected with fibre in rural, semi-rural and distant suburb towns with fewer than 20,000 inhabitants and will seek to add 2 million more, he said. The expansion plan will also rely on planned EU-backed government subsidies.

"We have started contacts with investors and the project is designed and we are ready to go out to the market," Vila told a news conference. "We want to keep control," he added.

Vila told Reuters Telefonica intended to attract pension funds, private equity or insurers, with or without experience in managing infrastructure.

Telefonica would keep between 55% and 60% in the new infrastructure unit.

Spain's largest telecom firm, like its peers in Europe, has been grappling with dwindling profit margins at a time when it needs funds to finance the rollout of new infrastructure and has been seeking cash from institutional investors.

The company has created a joint venture with German insurer Allianz in Germany and hopes to find another partner in Britain for its partnership with Liberty Global .

Separately, Telefonica said its net profit last year jumped five-fold to 8.14 billion euros helped by capital gains on mobile tower sales and its tie-up in Britain.

As a result, the company decided to pay its 0.30 euro dividend entirely in cash in two instalments in December and June 2023.

The company targets "single-digit growth" in core earnings and revenue this year, excluding the effects of mergers and acquisitions and other one-off factors. (Reporting by Inti Landauro; Editing by Andrei Khalip)