Chile's TDLC anti-trust court on Wednesday approved the merger of local airline LAN with Brazil's TAM, although the transaction is subject to certain conditions.

The ruling, which came after eight months of study, paves the way for the creation of Latin America's largest air carrier - a regional giant with a market value of some $12.14 billion.

LAN and TAM said in a joint statement that the decision was "one more step" in the merger process but that they would not comment further on the ruling until after carefully reviewing the 11 conditions imposed by the TDLC.

The merger deal, announced in August 2010, has faced various hurdles, including a legal challenge by Chile's PAL Airlines and objections from consumer groups who say it would reduce competition and lead to higher airfares.

The merger and creation of LATAM Airlines Group, as the new air carrier will be known, still require the green light from Brazil's CADE anti-trust regulator, which is expected to hand down its ruling in the last week of October.

The TDLC conditioned the tie-up on the new company complying with 11 measures that ensure sufficient competition on key routes.

They include requiring the merged entity to exchange four daily slots at Sao Paulo's Guarulhos airport with other carriers interested in launching or increasing regular service between Santiago and Brazil's largest city.

The new airline also must extend the benefits of its frequent flyer program to passengers of other interested airlines for a period of five years and renounce its membership in one of the global alliances to which LAN and TAM belong.

In addition, LAN must give up some of its flights to Lima and pledge to agree to the unilateral opening of Chilean domestic flights to foreign carriers without demands for reciprocity.