A New York judge approved a deal on Wednesday that will allow Lehman Brothers Holdings Inc to present its latest bankruptcy exit plan without opposition from two key creditor groups, moving the failed investment bank an inch closer to ending the biggest bankruptcy in U.S. history.

The agreement, reached with the creditor groups earlier this month, allows Lehman to seek approval of a plan to pay creditors back roughly $65 billion, and ensures that two of the largest creditor groups will not pursue competing plans.

Earlier versions of Lehman's plan drew criticism, most vocally from the two groups: bondholders led by hedge fund Paulson and Co and the California Public Employees Retirement System, and a collection of hedge funds and big banks including Silver Point Capital, Goldman Sachs Group Inc and Morgan Stanley .

Both groups publicly opposed the plan and submitted their own proposals for paying back creditors.

Lehman unveiled its latest plan in June, touting it as a compromise. The new proposal increases recoveries for certain unsecured creditors of the Lehman parent, and gives the Paulson and Goldman groups a role in selecting Lehman's post-bankruptcy board.

In exchange, the Paulson and Goldman groups agreed not to pursue their competing plans until creditors have had a chance to vote on the Lehman-proposed plan. Lehman must emerge from bankruptcy by March 31, 2012, for the agreement to hold up.

Judge James Peck, who oversees Lehman's bankruptcy, approved the deal without comment at a hearing in U.S. Bankruptcy Court in Manhattan on Wednesday.

The Paulson and Goldman groups hold more than $100 billion in claims against the Lehman estate, nearly one-third of the roughly $320 billion in valid claims from creditors. Lehman has said the support of those groups will go a long way in helping it achieve a consensus.

Still, the latest plan is not without its adversaries. Some creditors, including hedge fund Centerbridge Credit Advisors LLC, say it will not gain enough creditor support to be approved.

Centerbridge lodged an objection to the agreement Friday, saying the plan was the result of horse trading that subsidized a compromise with some creditors by siphoning recoveries away from others.

J. Christopher Shore, an attorney for the bondholders, said the plan gives creditors as much recovery as is practical.

There really isn't any more to get from any constituency, Shore said. If the parties' intention is to start war with the idea they're going to be getting more ... we think they may be a little naive.

IMPROVED RECOVERIES

Lehman was the fourth-largest U.S. investment bank, with an estimated $639 billion of assets, when it filed for Chapter 11 protection on September 15, 2008, at the height of the global financial crisis.

Under the new Lehman plan, holders of unsecured debt from the parent company would receive 21.1 cents on the dollar, down from 21.4 cents under the January plan. Other unsecured creditors would see their recoveries rise to 19.9 cents on the dollar by receiving payouts that had been reserved for creditors of Lehman subsidiaries under former versions of the plan.

Though still far from paying back creditors in full, the estimated $65 billion return in Lehman's latest plan is a $5 billion increase from earlier versions. Chief Executive Bryan Marsal has said he hopes to begin making payouts next year.

A hearing to authorize submitting the plan to creditors for a vote is set for August 30.

The case is In re Lehman Brothers Holdings Inc, U.S. Bankruptcy Court, Southern District of New York, No. 08-13555.

(Reporting by Nick Brown, editing by Maureen Bavdek)

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