Australian federal Treasurer Wayne Swan has approved the$2.2-billion worth merger deal between China's Yanzhou Coal Mining Co.'s Australian unit Yancoal and Gloucester Coal, and has even offered the Chinese firm an extension until the end of 2013 to bring down its stake ownership in Yancoal to not more than 70 per cent.

However, the approval and extension did come with some strings attached. Mr Swan wants the merged business listed on the Australian Securities Exchange by the end of 2013, remain based in Australia and the coal produced at the Australian mines marketed by Yancoal in line with accepted market practices.

"Yanzhou's investment in the Australian coal industry will allow for the further development of Australia's coal deposits, which will have positive impacts on employment and growth in the sector and more broadly for the economy," he said.

"The government welcomes foreign investment in Australia and continues to ensure that investments are consistent with Australia's national interest."

Mr Swan said the government allowed the time extension to credit Yanzhou's fast progress in complying with its' A$3.3-billion takeover acquisition of Felix Resources in 2009, as well as "in light of sustained volatility in global financial markets in recent years."

Yanzhou needs to reduce ownership of Yancoal to no more than 70 per cent, The Australian reported, the same required condition of its acquisition of Felix.

Yancoal and Gloucester both operate mines and projects in New South Wales and Queensland. Both plan to increase production capacity, Gloucester to 10 million tonnes a year by 2016, while Yancoal to 20 million tonnes annually by 2015.

Singapore-listed commodities trader Noble Group, whose businesses range from cotton and sugar to coal and iron ore, holds 64 per cent of Gloucester, which has a market value of A$1.6 billion. Noble Group has agreed to the deal.

Yanzhou is China's third-largest listed coal company by output.