By Tim Hepher

TOULOUSE, France (Reuters) -Europe's Airbus inaugurated a new assembly line for its A321neo passenger jet in Toulouse, southwestern France, on Monday, granting a new lease of life to the deserted hangar where the defunct A380 superjumbo was once built as it basks in record demand for smaller medium-haul jets.

Finance Minister Bruno Le Maire toured the partially automated line inside the Jean-Luc Lagardere plant, which Airbus says will create 700 jobs by 2026, or about half the full-time total when the world's largest jetliner was built there.

The plant's makeover highlights a shift in the industry's attention from its largest and boldest creations like the double-decker A380 to stalwart single-aisle designs, which are enjoying a second wind due to increased range and high demand.

The A321neo is the largest version of the A320 series of jets, which was relaunched with new engines in 2010 just in time for a boom in demand stoked partly by low interest rates.

It is the eighth European assembly line for the A320 family, with previously announced expansion plans in the United States and China due to bring the worldwide total to 10. The first plane is due to be completed in late 2023 for delivery next year.

Its opening comes as competition between Airbus and arch-rival Boeing shifts towards production, with both companies crafting strategies to deliver on bulging order books in the most efficient way, after months of chronic disruption.

The new line sits along one edge of the world's second-largest building by usable space, alongside a row of stores where robotic pickers will select parts and tools for workers. Other robots will be deployed to join aircraft sections.

The new line is part of a reorganisation that Airbus says will help it lift total A320-family output to 75 a month in 2026 from some 45 now. Some suppliers say the target is ambitious.

In a game of industrial musical chairs designed to recoup investment in the cavernous plant, an adjacent bay allows room for the existing A320-family production line in Toulouse to be transferred from its current home, where Concorde was built. Boeing too is reallocating space from large to small jets.

The ghost of the A380 is not entirely laid to rest, however.

A walled-off area in the rest of the plant is being pressed back into service for an 18-month programme of A380 inspections and repairs after cracks were found in wing spars, Reuters reported on Friday.

(Reporting by Tim Hepher; Editing by Richard Lough and David Evans)