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UPDATE 3-Idemitsu moves closer to Showa Shell deal after court nod to share sale

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* Idemitsu plans to issue 48 mln new shares at 2,600 yen apiece

* Court rejects founding family's petition to stop new share sale

* Planned merger with Showa Shell opposed by Idemitsu family (Updates with details from court papers)

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 offering, potentially clearing the way for a takeover of Showa Shell Sekiyu.

The family has lodged an appeal with the Tokyo High Court, their lawyer said, calling the ruling "unjust".

The descendents of the Idemitsu founder, Sazo Idemitsu, have been locked in a battle with the Japanese refiner's management for more than a year over the proposed Showa Shell buyout. The new share sale would dilute the family's stake and make it harder for them to oppose the deal.

Idemitsu, however, has earlier said it planned to sell 48 million new shares, equivalent to 30 percent of its outstanding shares, mainly to raise funds and help repay loans.

The court recognises the management's intention to dilute the founding family's stake, according to court papers seen by Reuters. But it also recognises the firm's need to raise funds to repay 159 billion yen ($1.42 billion) in loans - taken to buy Showa Shell shares - that will be up for redemption on Dec. 18.

Idemitsu, Japan's No.2 refiner by sales, in December 2016 completed the purchase of just under a third of Showa Shell, the first stage in its buyout of the smaller competitor.

It had planned to refinance the debt with subordinated loans but lenders have refused to provide it with the terms they had previously agreed, following the founding family's firm opposition to the deal, the court paper shows.

"The court cannot categorically determine the main objective of the new share issue is to enhance management's position, rather than to raise fund," according to the paper.

The new share sale, calculations by Thomson Reuters show, would cut the founding family's stake in Idemitsu to about 26 percent, from more than a third now, eliminating its ability to veto the Showa deal. The family says the two firms' cultures will not mesh.

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 ended down 3 percent at 2,646 yen, while Showa Shell gained 4.4 percent. The Nikkei 225 closed down 0.6 percent. ($1 = 112.3000 yen) (Reporting by Taiga Uranaka and Osamu Tsukimori, writing by Aaron Sheldrick; Editing by Himani Sarkar)