* Australia's Crown moves closer to Sydney casino approval

* Final approval still some way off

* Crown to target growing Asian gaming market

* Rival Echo's shares end down at 8-mth low on competition concerns

By Narayanan Somasundaram

SYDNEY, Oct 25 (Reuters) - Australia's Crown Ltd has won initial backing from a state government for a plan to build an A$1 billion ($1.03 billion) casino in Sydney, bringing founder and billionaire James Packer closer to his goal of a global casino empire.

A final approval, which is still some way off, will allow Crown to build a rival to Sydney's only casino, run by Echo Entertainment. Still, any new casino can't be operational before Echo's exclusive license expires in 2019.

Crown needs to either convince Echo, in which it has built a 10 percent stake, to agree a deal to share the sole licence, or lobby for a second licence. Crown has earlier said it favours a deal with its rival over seeking a second licence.

Asian gaming operator Genting has also built a 10 percent stake in Echo. Both Crown and Genting, which are targeting Asian high rollers arriving in Sydney, have sought regulatory approval to lift the holdings higher.

New South Wales Premier Barry O'Farrell said on Thursday the proposal by Crown to build a luxury hotel and casino in harbourside Barangaroo in Sydney will move to the next stage, which calls for a detailed proposal before the final approval stage.

"As Sydney's first six-star hotel, it would be a world-class tourist facility which would help us compete with other global destinations, particularly in the lucrative and booming Asian tourism market," O'Farrell said in a statement.

Echo shares fell 3.7 percent to an eight-month closing low on Thursday on concerns of heightened competition. Crown shares dropped 0.3 percent.

TARGETING ASIAN MARKET

Asia's casino world generates about $45 billion in annual revenue, and Packer, Genting and Las Vegas rivals such as Sands are racing to expand in the region.

Packer told a business seminar in Sydney late on Thursday that he did not believe Echo's Star casino had done enough for the city, and he wanted Australia to snare a larger slice of Asia's gaming market, particularly from Chinese travelers.

"Our opportunity is to grow Australia's market share from 3 percent," he said referring to the country's market share in Asia gaming, where Macau dominates.

"The biggest opportunity is China. In 2020, the Chinese are set to take 100 million overseas trips. Chinese tourism is changing the world," Packer said.

Crown's Chief Executive Rowen Craigie in a statement called the state government's decision a major step forward and said the company could provide a centre piece for Sydney that will draw millions.

Crown sealed a deal in August to develop a new hotel and casino resort at Barangaroo, as part of its push to build a global brand in the VIP gaming market.

Packer's Crown runs Casinos in Melbourne and Perth and holds stakes in casinos in London, Macau and Las Vegas. The Packer family has a long history in newspapers, magazines and television in Australia.

James Packer's father, Kerry Packer, was the richest man in Australia at the time of his death in 2006, worth around A$8 billion.

The junior Packer made his first big move out of media less than a year after the death of his father, selling Nine Entertainment to private equity company CVC Capital Partners Ltd .

The move appeared prescient. CVC last month recorded the largest ever loss on a single private equity deal in Asia when lenders to Nine agreed to swap more than $3 billion in debt for equity, giving U.S. hedge funds control of one of Australia's best-known media firms. ($1 = 0.9676 Australian dollars) (Editing by Muralikumar Anantharaman)