MELBOURNE, Dec 19 (Reuters) - Chile's SQM has teamed up with Australia's richest person, Gina Rinehart, to make a sweetened A$1.7 billion ($1.14 billion) bid for Australian lithium developer Azure Minerals, the three parties said on Tuesday.

The A$3.70 per share offer from SQM and Rinehart's Hancock Prospecting, already the target's two largest shareholders, is up 5.1% from SQM's prior solo offer of A$3.52 a share.

The deal would give world no.2 lithium producer SQM a foothold in Australia with a stake in Azure's Andover project and a partnership with Hancock, which has rail infrastructure and local experience in developing mines.

It comes amid a frenzy of deals involving lithium miners, given strong prospects for long term demand of the material key to the energy transition, and as lithium prices have cratered due to slower than expected electric vehicle sales this year.

By teaming with Rinehart, whose Hancock Prospecting had built up a stake of more than 18% in Azure in October, SQM has overcome a major hurdle to its takeover going ahead.

SQM already owns a 19.4% stake.

"(The combined bid) augurs well for completion of the transaction in our view," said analyst Paul Howard of broker Canaccord. Azure shares traded as high as A$3.71 on Tuesday.

The joint bid marks a win for Rinehart's efforts to gain exposure to lithium processing, after the magnate tried and failed a similar approach with Liontown Resources, in which it snapped up a large minority stake thwarting a takeover by top global lithium producer Albemarle.

Analysts see Rinehart's tie-up with SQM following the script of her partnership with iron ore giant Rio Tinto which helped Rinehart build her company's iron ore mining know-how.

The deal will need approval from a simple majority of shareholders, but relies on the discretion of the Australian Securities and Investments Commission allowing shareholders who approve the deal to hold on to their stakes.

That means large minority shareholder Mineral Resources , backed by Australian billionaire Chris Ellison, could approve the deal without having to sell its 13.6% stake which it acquired for as much as $4 a share.

The structure is novel in Australia and reflects how bankers and lawyers are getting creative to push deals through.

"This gives Chris an opening to bid, perhaps with scrip," said one small investor. "Hold," he said by text, adding the "sweating" emoji.

Mineral Resources declined to comment.

Azure said its board had unanimously backed the proposal and encouraged all of its shareholders to support it unless a higher offer emerged.

Two of Azure's major shareholders, Creasy Group, which holds 12.8%, and Delphi Group, which has 10.2%, have confirmed to Azure that they intend to sell all of their shares in the absence of a superior proposal for Azure, Hancock said. ( $1 = 1.4919 Australian dollars) (Reporting by Melanie Burton in Melbourne, John Biju and Archishma Iyer in Bengaluru; Editing by Jonathan Oatis, Jamie Freed and Sonali Paul)