SEOUL, July 18 (Reuters) - South Korea said on Tuesday it would challenge an arbitration ruling that ordered it to pay U.S. hedge fund Elliott Investment Management $108.5 million in a case involving the merger of two Samsung Electronics (005930.KS) affiliates. The Permanent Court of Arbitration in the Hague last month found in favour of Elliott, though the compensation ordered was much less than the $770 million the hedge fund had sought. South Korea will argue that the Hague-based tribunal did not have jurisdiction to make the ruling under a free trade agreement it has with the United States, and will challenge the ruling at a UK arbitration body, the Justice Ministry said in a statement. It did not name the UK arbitration body. ($1 = 1,260.1300 won)Reporting by Hyunsu Yim; Editing by Ed Davies and Edwina GibbsOur Standards: The Thomson Reuters Trust Principles.

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Persons: Elliott, 1,260.1300, Hyunsu Yim, Ed Davies, Edwina Gibbs Organizations: Elliott Investment, Samsung Electronics, South, Pension Service, Samsung, Hague, Ministry, Thomson Locations: SEOUL, South Korea, U.S, Hague, United States