James Packer's Crown Limited has received approval from NSW authorities to increase its shareholding in rival gaming company Echo Entertainment, owner of the Star, fuelling the fight for dominance of the Sydney casino market.
The announcement by the Independent Liquor and Gaming Authority (ILGA) comes a year after it launched a statutory investigation into whether Crown and its associates, including Mr Packer, are "suitable persons" to be associated with the Star casino.
Crown applied in February last year to lift its stake in the rival casino operator from 10 per cent to 25 per cent. However, the ILGA says it will only allow Crown to lift its stake to 23 per cent.
The authority decided on 23 per cent because a 25 per cent shareholding would trigger change of control provisions in US securities issued by Echo last year.
Crown's application to increase its shareholding must be signed off by gaming authorities not only in NSW but also in Queensland, where Echo owns casinos.
The Queensland Office of Liquor and Gaming Regulation has yet to announce a decision, but the NSW approval is a significant step and indicates that permission is likely to be granted.
When Crown made its application last year, Mr Packer was engaged in an aggressive campaign for a seat on the Echo board with a view to controlling the company's exclusive Sydney casino licence.
Mr Packer planned to use the licence to run a VIP-only, high-roller casino in his proposed $1 billion hotel complex at Barangaroo.
However, after the NSW government indicated that would not be possible, Crown lodged an unsolicited proposal to be granted a second Sydney casino licence after Echo's exclusivity arrangement expires in November 2019.
Last month it was revealed Echo has lodged its own unsolicited proposal with the state government to extend its exclusivity arrangement beyond 2019 and expand the Star, which would torpedo Mr Packer's project.
Crown's push to increase its shareholding in Echo is now being viewed as an "insurance policy" to use to gain a foothold in the Sydney market if the government rejects its Barangaroo proposal.
In a statement on Friday afternoon, the ILGA chairman, Chris Sidoti, said the authority had approved Crown to be a "close associate" of the Star.
However, Mr Sidoti said further approval would be needed from the authority for any associate of Crown to become a director of Echo or hold a key executive position in the company.
Any proposal for a joint-venture casino between the companies would also require additional written approval.
The authority is also considering an application from another Echo shareholder, Genting, to lift its 5.22 per cent stake to as much as 25 per cent.