UPDATE 3-NetEase, Activision caught up in China turf war

* China regulator says game's new version lacks approval

* Observers say move the result of apparent govt turf war

* NetEase shares lose 2.4 pct, Activision sheds 4.3 pct

* Move underscores risks to China Internet firms

(Adds comments, background)

By Alexei Oreskovic and Melanie Lee

SAN FRANCISCO/BEIJING, Nov 2 (Reuters) - A Chinese regulator has ordered top online game firm NetEase.com (NTES.O) to stop operating a popular title, the result of an apparent governmental turf war highlighting the risks the sector faces.

NetEase said the General Administration of Press and Publication (GAPP) halted and returned its application to operate the latest version of Activision Blizzard's (ATVI.O) popular World of Warcraft game due to "gross violations" of regulations.

The agency posted a statement on its Web site demanding that NetEase suspend charging users to play the game, and disallow new account registrations, NetEase said on Monday. The move put the recently-relaunched popular title's future into question in China, and sent NetEase and Activision Blizzard shares down 2.4 percent and 4.3 percent, respectively.

Observers said GAPP's move was the result of a recent turf war between the agency and the Ministry of Culture, which also oversees the online gaming sector.

"This is different from operating a businesses in the U.S. or Europe," Yu Yongfu, CEO of Chinese mobile Internet firm UCWeb told Reuters on the sidelines of one of China's top Internet shows taking place this week in Beijing.

"For Chinese businesses expanding in China, we need to learn how to operate suitably in the environment in order to thrive and survive," he said.

NETEASE WOES BOOST OTHERS

While NetEase shares fell on the news, some of its major rivals rose as investors bet they would capitalise on the setback. Shanda Games (GAME.O) jumped 3.1 percent, while The9 <NCTY.O) closed up 4.3 percent.

"Millions of Warcraft players will suffer the most," said Leon Li, vice president of Chinese mobile Internet firm KongZhong (KONG.O). "But if you take a long term view of the industry, many of these Warcraft gamers may migrate to other games, so for the other Chinese online game companies, it is a good thing."

The news comes as Beijing tries to tighten its control over online gaming, worried about undesirable content. In October, the regulator banned many forms of foreign investment into the country's online games industry -- expected to grow 30-50 percent this year to up to $4 billion. [ID:nSHA252963]