* China approves Diageo's increased stake in joint venture
* Diageo says not intention to take full control of Shuijingfang
* Says has financial resources if required to take full control
* Diageo shares close up 0.8 percent (Adds further details and share price close)
By David Jones
LONDON, June 27 - British drinks group Diageo said it did not intend to take full control of Sichuan Shuijingfang , China's fourth largest white spirits group, after winning approval to raise its stake in Shuijingfang's biggest shareholder.
The maker of Johnnie Walker whisky and Smirnoff vodka said it was keen to expand its presence in super premium Chinese white spirits, one of the world's largest and fastest growing spirits sectors and where Shuijingfang's business is focused.
Diageo said on Monday it had approval to raise its stake in its joint venture Sichuan Chengdu Quanxing by 4 percent to 53 percent for 140 million yuan ($22 million), and this would trigger an offer for Shuijingfang.
Quanxing has a stake of 39.7 percent in Shuijingfang and, under Chinese rules, if Diageo has control of Quanxing it must launch a mandatory tender offer for the whole of Shuijingfang, which is listed as Sichuan Swellfun.
A Diageo spokesman said while it wanted to work with other shareholders in Shuijingfang, it had the financial resources to mount a full bid under the tender offer, which would be worth 6.3 billion yuan.
"It is not our intention to seek full ownership of Shuijingfang as we see benefits in working with Chinese shareholders, but we do have the resources in place to fund the bid if needed," the spokesman said.
The approval was one of a number of deals announced between Britain and China and worth 1.4 billion pounds in total during a visit by Chinese Premier Wen Jiabao to Britain.
The Diageo investment contrasts with Coca-Cola's failed $2.4 billion cash bid for Huiyuan Juice Group back in 2009, which collapsed after China ruled that the proposed deal would have been bad for industry competition.
The London-based group is now required to seek clearance to launch its tender offer for Shuijingfang, which is expected to take several weeks.
Diageo has priced its tender offer at the minimum required -- 21.45 yuan per share compared with Friday's closing share price of 21.22 yuan.
Diageo shares closed up 0.8 percent at 1,270 pence in a slightly firmer London stock market.
Vermilion Partners acted as lead adviser to Diageo, while UBS and CITIC Securities also advised on the transaction.
$1 = 6.475 Chinese renminbi Reporting by David Jones; Editing by Jane Merriman and Dan Lalor