(Adds details on nominees, SRS comment)

By Svea Herbst-Bayliss and Arunima Banerjee

March 21 (Reuters) - Car rental company Avis Budget Group Inc on Wednesday announced the five candidates it is nominating to its board, including three that were been proposed last month by SRS Investment Management.

The move extends an olive branch to its biggest investor as Avis tries to end a proxy battle and as U.S. regulators are considering changes to how investors can vote in contested board elections.

Avis' slate includes independent nominees Francis Shammo and Glenn Lurie plus Sanoke Viswanathan, Jagdeep Pahwa and Carl Sparks, who were proposed by SRS Investment Management in February. The SRS candidates agreed to be on the company's slate.

But SRS, which owns a 31 percent economic stake in Avis, on Wednesday said the company's slate "falls short of achieving the board refreshment that we believe is necessary" and that it will continue to run its original slate of five candidates.

Tension has been building between the two sides for months.

Avis in January put in a so-called poison pill to prevent SRS from converting derivatives to more voting stock.

SRS, which traditionally stays out of the limelight and has never run a proxy contest, in February announced a slate of five candidates, including two people who are already serving on the board. It has had board representation at Avis since 2016.

Avis included the SRS nominees to show "willingness to work cooperatively with a significant shareholder to advance the best interests of all shareholders," lead independent director Leonard Coleman said in a statement.

SRS controls 15 percent of the company's common shares and another 16 percent in derivatives, according to a filing. In February SRS said in a filing that Avis "cannot achieve its full potential under the stewardship of the current Legacy Board."

The U.S. Securities and Exchange Commission is considering allowing all investors to select candidates from a universal proxy card in contested board elections.

Currently, if investors vote by mail, as most do, they can cast their vote either for the management card or the dissident card. But if they attend the annual meeting, they can select from a universal proxy card where they can pick nominees from both sides.

(Reporting by Svea Herbst-Bayliss in Boston and Arunima Banerjee in Bengaluru; Editing by Sriraj Kalluvila and Lisa Shumaker)