MGM Grand Casino in Macau.

A $2.5 billion Macau casino planned by MGM China, the Chinese arm of U.S. gambling giant MGM Resorts International, received government approval on Wednesday, sending shares of MGM China to an 18-month high.

The announcement in Macau's official gazette comes after MGM said in October it would pay the government 450 million patacas ($56.4 million) as an initial installment to lease the land. The project still requires various construction approvals before building can start.

(Read More: Macau Gambling Revenue Hits Record)

MGM competes in Macau, the world's largest gambling destination, against other U.S. rivals like Sands China and Wynn Macau.

The casino is expected to open in 2016 on Macau's Cotai strip at the same time as other new properties by the six licensed operators. MGM's land concession contract will have an initial term of 25 years, the group said in a statement to the Hong Kong stock exchange on Wednesday.

Cotai, a stretch of reclaimed land that connects to Macau's crammed peninsula where MGM already has one casino, has been a key focus for Macau casino operators looking to expand in the enclave.

Shares in the $7 billion company were up 5 percent by midday at HK$15.58, the highest since August 2011 and ahead of casino peers SJM Holdings, which was up 1.9 percent, and Galaxy Entertainment Group, which was up 1.8 percent.

(Read More: Manila Primes for Casino Boom Despite Graft Spotlight)