* Idemitsu plans to issue $1.1 billion in new shares
* Court earlier rejected founding family's petition to stop sale
* Planned merger with Showa Shell opposed by Idemitsu family (Recasts, adds share prices)
TOKYO, July 18 (Reuters) - Idemitsu Kosan Co said it would proceed with a $1.1 billion sale of new shares, after a court rejected the founding family's petition to block the stock offering, potentially clearing the way for a takeover of Showa Shell Sekiyu.
The descendents of the Idemitsu founder, Sazo Idemitsu, have been locked in a battle with the Japanese refiner's management over the proposed buyout. The new share sale would dilute the family's stake and make it harder for them to oppose the deal.
The family has lodged an appeal with the Tokyo High Court, their lawyer said, calling the latest decision "unjust".
Earlier this month, Idemitsu announced plans to sell 48 million new shares, equivalent to 30 percent of its outstanding shares, saying it needed to raise funds partly to repay loans.
The founding family quickly sought a court injunction to block the stock sale, which according to calculations by Thomson Reuters would cut its stake to about 26 percent, from more than a third now, eliminating its ability to veto the merger.
Idemitsu hopes to raise 124.8 billion yen ($1.11 billion) by issuing the shares at 2,600 yen apiece.
Payment for the shares is due on Thursday.
Idemitsu, Japan's No.2 refiner by sales, in December completed the purchase of just under a third of Showa Shell, the first stage in its planned merger with the smaller competitor.
If the deal goes through, it would be the second in Japan's bloated refining sector after JX Holdings Inc bought TonenGeneral Sekiyu.
Idemitsu shares were down about 2.6 percent by 0342 GMT, while Showa Shell was up early 3 percent. The Nikkei 225 was down about 0.6 percent. ($1 = 112.0900 yen) (Reporting by Taiga Uranaka and Osamu Tsukimori, writing by Aaron Sheldrick; Editing by Himani Sarkar)