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Echo, which holds the sole licence to operate a casino in Sydney until 2019, has been lobbying to extend this right in an attempt to block Crown's plans to add to its Melbourne casino.

Crown, controlled by billionaire James Packer, has said it wants to open a VIP casino in Sydney as part of a A$1 billion six-star hotel and residential waterfront development, boosting its share of the lucrative Asian gambling market.

The New South Wales government has said it will approve only one project, meaning either Crown builds a second casino or Echo expands is business and remains the sole gambling operator.

Echo said in a statement it would invest more than A$1.1 billion ($1.0 billion) to build two new luxury international hotels with a global operator, expand its casino and pay the government $250 million in cash to remain the exclusive casino operator.

It included an alternative proposal under which it would still build the hotel and casino development, but which would allow Crown's Barangaroo project to go ahead on condition that it was strictly VIP-only.

Under this scenario Echo would not make the A$250 million cash payment for extending exclusivity arrangements.

"This alternative may be seen as a potential win-win scenario for the people of Sydney, with a combined infrastructure and tourism spend potentially in excess of A$2 billion," said Echo chairman John O'Neill in the statement.

A Crown spokesman said the company's most updated proposal was with the state government, but would not be made public until the government made the decision.

Crown sold a 10 percent stake in Echo in May, suggesting to market watchers that it was confident of winning approval.

Malaysian gambling giant Genting Bhd (GENT.KL) recently increased its stake in Echo to 6.6 percent.

Genting has applied to increase its stake above 10 percent. The New South Wales state's gaming authority has yet to rule on that application and has given no timeframe for a decision.

($1 = 1.0837 Australian dollars)

(Reporting By Maggie Lu Yueyang; Editing by Richard Pullin)