By Alexandria Sage

DETROIT, Jan 10 (Reuters) - Tesla Motors said on Sunday it was updating the Autopilot driving systems in Model S sedans to put new limits on its hands-free operation, which has been both praised for its innovation while criticized for having been launched too early.

The function will now be restricted on residential roads or roads without a center divider, Tesla said, meaning that the car cannot drive faster than a maximum of the speed limit plus five miles per hour.

When Autopilot launched in October, Chief Executive Elon Musk cautioned that the hotly anticipated function was in beta mode, or a test phase of development, with full "hands-off" driving not recommended.

Still, a host of subsequent videos posted by Tesla drivers on YouTube showed near-misses on the road with Autopilot, prompting Musk to say he would curb the function to minimize the possibility of people doing "crazy things."

Tesla, the U.S. pioneer in luxury electric cars charged by batteries, was one of the first companies to offer a steering system that could be operated hands-free, one of the first steps to full self-driving that industry experts believe may be available by 2020.

The car is able to keep to its lane using cameras, radars, GPS and mapping functions, but glitches can sometimes occur when roads are not clearly marked.

The company's expertise in software has allowed it to add the hands-free functionality through a software update, but critics have suggested the company should have delayed the Autopilot launch until it was perfect.

At the Consumer Electronics Show in Las Vegas last week, the head of GM's global product development, Mark Reuss, said his company would "never" use over-the-air upgrades in safety-critical systems like steering and braking.

Besides curtailing functionality on residential roads, improvements have been made to help the car better stay in lanes even with faded lane markings, and when passing exits.

In cruise control mode, the car will now anticipate highway exits by slowing down if you have activated your turn signal, Tesla said.

Tesla also said a Model S driver could now park their car from outside the vehicle in tight spots such as narrow garages. The car can also park itself in perpendicular spots to the curb.

(Reporting By Alexandria Sage; Editing by Keith Weir)