* Obama seeks $350 billion in financial bailout funds
* Obama pledges wider benefits, new bailout restrictions
* Congress has 15 days to decide whether to block request (Repeats to remove extra work at the end of the last paragraph) (Adds White House report to Congress, Senate Republican)
By Jeremy Pelofsky and Jeff Mason
WASHINGTON, Jan 12 (Reuters) - U.S. President-elect Barack Obama on Monday sought the remaining $350 billion of federal financial bailout funds from Congress, pledging a major overhaul that would distribute the money more widely and impose tougher restrictions on recipient companies.
Obama said he asked President George W. Bush to make the request on his behalf so he could take office next week with the funds at the ready to deal with a "still fragile" financial system.
"I felt that it would be irresponsible for me, with the first $350 billion already spent, to enter into the administration without any potential ammunition should there be some sort of emergency or a weakening of the financial system," Obama told reporters.
Obama and his economic team agreed to new restrictions and changes to the program to address concerns by fellow Democrats, who control both houses in Congress and have been critical of the Bush administration's handling of the funds so far.
The $700 billion rescue program was approved last October to bolster the financial industry as it reeled under the stress of bad mortgage debts and several major institutions were threatened with collapse.
Treasury Secretary Henry Paulson initially sold the program as necessary to buy up troubled assets to free banks to resume lending. But he quickly shifted focus and the first $350 billion was used primarily to make direct investments in financial institutions to buttress their capital.
Many lawmakers have complained that some recipients of the funds continue to pay big executive bonuses and shareholder dividends while loans are still difficult to get.
"Many of us have been disappointed with the absence of clarity, the lack of transparency, the failure to track how the money's been spent and the failure to take bold action with respect to areas like housing," Obama said.
"My commitment is that we are going to fundamentally change some of the practices in using this next phase of the program. We're going to focus on housing foreclosures, we're going to focus on small businesses, we're going to focus on what's required to make sure that credit is flowing to consumers and businesses," the president-elect added.
Bush submitted the request to Congress Monday evening, which under the law for the bailout starts a 15-day clock for lawmakers to decide whether to block access to the remaining $350 billion.
A spokesman for Senate Majority Leader Harry Reid said the Senate could vote on the issue as early as Thursday. Democrats have not said when the House of Representatives would vote.
The 18-page request to Congress said the remaining funds would be used partly to help homeowners facing mortgage foreclosures as well as expand existing programs. But it did not offer specific details about how.
Top Senate and House Republicans quickly raised questions about the program.
"I would be hard-pressed to support additional funding for the TARP without sufficient assurances this money will not be wasted, misspent or simply used for more industry-specific bailouts," Senate Republican Leader Mitch McConnell said.
The Treasury has allocated in excess of the first $350 billion in funds from the Troubled Asset Relief Program, but it said on Monday it has disbursed only $265.3 billion so far.
AID FOR CONSUMERS, SMALL BANKS, MUNICIPALITIES
Both Obama and congressional Democrats have pressed for more of the money to go directly to consumers struggling with a wave of home foreclosures and have been pushing for stricter limits to be imposed on companies that receive aid.
Obama will direct his team to ensure that aid gets to smaller banks, businesses and municipalities, as well as helping Americans buy a car or get a college loan, Lawrence Summers, incoming director of the White House National Economic Council, said in a letter to congressional leaders.
"Those are changes the American people are demanding and those are the changes that President-elect Obama is committed to making happen," he said.
Summers said Obama, who takes office on Jan. 20, would also commit to a fuller accounting of the $700 billion program, and place stricter limits on dividends issued by companies getting the aid and compensation paid to chief executives.
The changes Summers outlined closely mirrored changes sought in legislation introduced last week by House Financial Services Committee Chairman Barney Frank. His bill would require money be spent to slow home foreclosures and to spell out steps to increase the transparency of the program.
"It seems clear that the Obama administration agrees with what we are setting forward and I believe this creates a framework so that the release of these funds can go forward," Frank said in a statement.
Still, the Massachusetts Democrat said he wants the requirements enshrined in law, adding the House would likely vote on his bill on Thursday. "Our motto is going to be 'Trust but verify,'" Frank told Bloomberg Television.
Some Senate Democrats have questioned whether Frank's bill could be passed quickly enough and said a letter of assurances from the incoming Obama administration might suffice.
An Obama administration official said that many, if not all, of the reforms could be done administratively rather than needing new legislation and that they will move quickly to implement them once they take office. (Additional reporting by Tabassum Zakaria, Ross Colvin and Kevin Drawbaugh, writing by David Lawder; editing by Leslie Adler)