China's state assets watchdog has approved the sale of a 50 percent stake in Xugong, a leading Chinese construction machinery manufacturer, to Carlyle Group, a private equity firm from the United States, the Economic Observer newspaper said on Sunday.

The State Assets Supervision and Administration Commission has approved Carlyle's revised bid for Xugong. The deal is waiting for approval by the Ministry of Commerce (MOC) to take into effect, the report said, quoting a source close to the deal.

The source said the new deal is very likely to be approved as it has been worked out with the guiding of the MOC.

Carlyle originally offered 370 million U.S. dollars for a 80 percent stake in Xugong. The deal was submitted to the MOC for approval in December last year, but was turned down amid rising concerns that foreign control of key Chinese firms could threaten the country's economic security.

The parties signed a new deal in Mid-October, in which Carlyle reduces its stake to 50 percent, at a cost of 1.8 billion yuan, or 225 million dollars roughly.

Carlyle also loses the board chairmanship to Xugong, but will have equal representation on the board.

The new deal has been approved by the congress of employees as well as the Xuzhou city government and the government of east China's Jiangsu Province, where the company is located.

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