New Delhi, Jul 29 (Reuters): The foreign investment regulator gave conditional approval on Monday for a $379 million deal by Abu Dhabi's Etihad Airways to buy a stake in Jet Airways(JET.NS), paving the way for more deals in the country's domestic aviation sector.

Etihad had agreed in April to buy a 24 percent stake in Jet in the first such deal since the government allowed foreign airlines to own up to 49 percent of Indian carriers last September.

But the deal had been delayed by regulatory scrutiny as well as concerns raised by some politicians relating to a bilateral accord between India and the United Arab Emirates.

The deal still has to be cleared by the capital markets regulator and obtain the approval of a ministerial investment panel before the airlines can close it.

"We have approved with some conditions," Economic Affairs Secretary Arvind Mayaram told reporters after a meeting of the Foreign Investment Promotion Board (FIPB). He did not elaborate on the conditions set.

The Jet-Etihad deal bodes well for more foreign investment in the Indian aviation sector where most carriers are burdened with heavy debts and make losses mainly due to high fuel costs.

For foreign investors, buying a stake in an Indian carrier grants access to one of the world's fastest growing domestic airline markets which has plenty of untapped potential, especially in services to smaller Indian cities.

Low-cost carrier SpiceJet (SPJT.BO) has received interest from various unidentified potential investors, while fellow budget airlines GoAir and IndiGo have also been identified as potential targets.

Ahead of Monday's announcement, Jet shares had jumped nearly 3.7 percent, taking their gains in the last two sessions to nearly 22 percent on speculation the deal would be approved.

Effective Control

Last month, the FIPB had deferred a decision on the deal seeking more details on who would be effectively in control of Jet. There were concerns that Etihad would control Jet even though it was taking a minority stake, officials have said.

The deal won regulatory approval after a revised shareholder agreement decreased Etihad's presence on the board of Jet, according to a document seen by Reuters, addressing government concerns that the Abu Dhabi carrier appeared to be taking control of the Indian airline.

Etihad will now take two seats on the board, which will have up to 12 members, one less than initially planned. Jet's founder group will appoint four board members and will have the right to nominate the chairman, whereas Etihad will appoint a vice chairman, according to the document.

A senior government official with direct knowledge of the matter confirmed the new board composition to reporters. The official said the chairman would have a "casting vote" under the revised agreement and that Jet had dropped an earlier plan to shift revenue management to Abu Dhabi.

"Now, actual control will be in the hands of Jet," the official, who did not want to be named, said.

He said some of the conditions set by the FIPB included a provision that the company's chairman could bring a proposal to the board without a mandate of a three-quarter majority and that Indian law would be applicable in all cases except arbitration proceedings.

Jet and Etihad declined comment.

Opposition politicians have opposed the deal on grounds that a bilateral accord between India and the United Arab Emirates increasing the number of airline seats per week favoured Etihad.

The cabinet needs to approve this bilateral agreement, which was announced in April just hours before the Jet-Etihad deal was unveiled.