(Adds Cukurova statement, context, background)
ISTANBUL, July 31 (Reuters) - Cukurova Holding said on Thursday it paid Russia's Alfa Group $1.6 billion to recover a disputed stake in Turkcell, taking a major step towards regaining control of Turkey's biggest mobile phone operator after a seven-year battle.
Istanbul-based Cukurova signed a loan agreement with state-run lender Ziraat Bank in connection with the Alfa Group payment, the company said in a statement to the Istanbul Stock Exchange.
A source at Altimo, the telecoms investment arm of Russia's Alfa Group, said last week that Cukurova would secure the financing from Ziraat Bank and that a payment was expected on July 31.
"Our Group has signed a loan agreement with Ziraat Bank in relation to recovering the Turkcell shares held by Alfa Group and by using loans from the agreement, about $1.6 billion owed to Alfa Group as per the Privy Council decision has been paid to Alfa Group's bank account," Cukurova said.
"Therefore, the block in favour of Alfa Group has been removed and a block, on the same shares, have been restored in favour of Ziraat Bank," it said in the statement.
A British court that has been arbitrating in the dispute said last week that Cukurova and Alfa had agreed terms under which Cukurova could finance the recovery of the stake.
Altimo appropriated the 13.8 percent stake, a controlling position due to Turkcell's complex ownership structure, when Cukurova defaulted on a $1.35 billion loan.
The Privy Council ruled a year ago that Cukurova, owned by one of Turkey's richest man, Mehmet Emin Karamehmet, must pay $1.6 billion, which includes interest payments, to Altimo in 60 days if it wanted to recover the stake.
The Turkish government has been keen for Turkcell, the country's biggest mobile phone operator, to remain in Turkish hands and for Cukurova to secure financing from a local partner.
Cukurova is registered in the British Virgin Islands, which is why the case is being handled by the Privy Council, the final court of appeal for some countries in the Commonwealth.