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UPDATE 3-Faroe Islands? UK to cautiously reopen travel from May 17

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* Limited reopening to take place on May 17

* 12 countries, territories to have quarantine-free travel

* Industry condemns excessive caution

* Turkey added to UK's red list (Adds details)

By Sarah Young and Kate Holton

LONDON, May 7 (Reuters) - Britain will allow international travel to resume from May 17 but just a handful of countries made a list of destinations open for quarantine-free holidays as the government cautiously lifts coronavirus restrictions.

The "green list" for easier travel announced on Friday included just 12 countries and territories, among them Portugal, Israel, New Zealand, Australia and the Faroe Islands.

That angered stricken airlines and holiday companies that are battling for survival after a year of minimal flying.

Left off the list were Spain, France, Italy and the United States, the top four most visited countries by UK residents in 2019, which all sit in the amber category, requiring self-isolation on return to the UK.

As the pandemic intensifies in parts of the world and variants emerge, Turkey was also added to a red list of countries. The government said people should not be travelling to amber and red countries for leisure. Travellers who have to arrive from red countries face 10 days of managed hotel quarantine that they pay for themselves.

"Today marks the first step in our cautious return to international travel, with measures designed above all else to protect public health and ensure we don’t throw away the hard-fought gains we’ve all strived to earn this year," transport minister Grant Shapps said.

Britons have been banned from going abroad without an essential reason since early January, a blow for leisure travel that has also split families who live across different countries.

Airlines, holiday companies and tourist hotspots in southern Europe have been waiting for big-spending Britons to start travelling again, but they will have to wait a few months longer for a full rebound to take off.

The list will be reviewed every three weeks. It is currently only for people from England but devolved administrations in Scotland, Wales and Northern Ireland are expected to accept it too.

In Britain, green list travel will involve people taking two COVID-19 tests, one before arrival back into the UK and one within two days of returning.

'EXCESS OF CAUTION'

Trade bodies for pilots and airlines, airports and holiday groups said Britain was being excessively cautious and that such a limited reopening would continue to drag on an industry that had taken great strides to manage safe travel.

Experts have also said prices could shoot up for bookings to the few places on the green list, and Shapps said airports could also see longer delays as airlines check for negative test results.

Many destination countries also have their own requirements, with many still effectively closed.

"This excess of caution from the government is extremely disappointing for everyone who works in the travel sector," Brian Strutton of the British Airline Pilots Association said.

The travel industry had argued that Britain's rapid vaccination programme should enable it to open up more quickly but the government has prioritised efforts to prevent coronavirus variants from entering the country.

Heathrow Airport, the country's biggest, and British Airways both urged the government to add more countries to the green list when it next reviews travel in early June, and to allow those who have been fully vaccinated to travel without restrictions.

"The government should help people plan ahead by publishing a list of countries expected to be on the green list for the summer holidays so that passengers are not faced with high prices for last-minute bookings," Heathrow CEO John Holland-Kaye said.

Before the announcement, the head of British Airways-owner IAG had also called on the UK and the United States to open a travel corridor, given their high vaccination rates.

($1 = 0.7208 pounds) (Reporting by Sarah Young Editing by Keith Weir and Kate Holton)