SYDNEY (Reuters) - Australia's No. 1 casino company Crown Resorts Ltd (>> Crown Resorts Ltd) on Thursday cancelled a demerger of its international assets and scrapped plans to build a new casino in Las Vegas, as a gambling crackdown in China throws its expansion plans into disarray.

In a surprise trading update, the company 53 percent owned by billionaire James Packer said it would no longer proceed with a three-way split it was recommending to shareholders as recently as October.

Instead, the company said it would sell half its 27.4 percent stake in Melco Crown Entertainment Ltd , a joint venture focused on the Asian gambling hub of Macau, back to its joint venture partner (>> Melco International Development Ltd), and use the A$1.6 billion (956.63 million pounds) proceeds to cut debt and pay a special dividend.

Scrapping the demerger and selling shares would "maximise value" and allow the company to fund growth projects, Crown Chairman Robert Rankin said in the statement.

The about-face shows the impact the Chinese government's anti-graft campaign is having on casino operators throughout Asia, especially the southern Chinese territory of Macau, the only place in China where casinos are legal.

Macau has suffered gaming revenue declines every month for more than two years, while Crown said turnover from VIP gamblers - largely Asian tourists - at its Australian casinos would likely fall 45 percent in the six months to end-December. Overall Australian revenue would fall 12 percent for the period.

In October, 18 Crown staff were detained in China for suspected "gambling crimes" as Beijing sent a strong signal that any sign of gambling on the mainland - even marketing for foreign casinos - would not be tolerated.

It was the first sign that Crown, with a market capitalisation of A$8.3 billion, had direct exposure to the Beijing-led crackdown and forced investors in Australia to reconsider the gaming sector more broadly.

"There's no doubt that those arrests changed everyone's outlook for the sector," said Angus Gluskie, a portfolio manager at White Funds Management, which holds Crown shares.

"It's made it quite clearly more difficult to operate. It's not as easy as it previously looked."

Crown did not elaborate on its decision to scrap development on the site slated for Alon Las Vegas, which was to have been its first majority stake in the U.S. casino city.

While Crown cancelled the demerger, it said it would still spin off a 49 percent stake in some Australian hotel properties.

Crown's first-half results are due in February 2017.

Crown shares were in a trading halt.

($1 = 1.3524 Australian dollars)

(Reporting by Byron Kaye; Editing by Stephen Coates)

By Byron Kaye

Stocks treated in this article : Melco International Development Ltd, Crown Resorts Ltd