Chinese regulators have approved tech heavyweight Alibaba's financial arm Ant Group to raise 10.5 billion yuan ($1.5 billion) for its consumer finance unit, marking a significant step forward for the revamp of the financial technology company's lucrative consumer loan business.

Chongqing Ant Consumer Finance Co Ltd had gained approval to increase its registered capital to 18.5 billion yuan from 8 billion yuan, the Chongqing Office of the China Banking and Insurance Regulatory Commission said in a notice on Friday.

Under the latest capital expansion plan, Ant will invest 9.25 billion yuan for a 50 percent stake in its Chongqing consumer finance unit, while the digital technology unit of State-owned investment firm Hangzhou Finance Investment Group will invest 1.85 billion yuan to become the second-largest shareholder with a 10 percent stake.

Other investors in the deal include Nanyang Commercial Bank, Sunny Optical Technology Group Co Ltd and Hangzhou-based Transfar Zhilian Co Ltd.

Alibaba shares in Hong Kong jumped 8.74 percent to close at HK$96.4 ($12.3) on Wednesday.

The approval came weeks after the tone-setting Central Economic Work Conference last month stated that platform companies will be supported to "fully display their capabilities" in bolstering economic growth, job creation and global competition.

Ant is restructuring after its IPO plan was halted in late 2020 with regulators citing a change in the regulatory environment to ensure market fairness.

Wang Pengbo, a senior analyst at market consultancy Botong Analysys, said the capital expansion approval for Ant Group has signified that the company's rectification work has made some achievements to meet regulatory requirements, and the move will help the company to expand its current consumer finance business scale and seek further growth.

Ant officially set up a consumer finance company in Chongqing in June 2021, which offers credit to millions of Chinese consumers through a pair of lending services — Huabei and Jiebei.

In the first three quarters of 2022, revenue of Ant's consumer finance business stood at 3.21 billion yuan, while its net profit stood at 386 million yuan.

Leon Qi, an analyst with Daiwa Capital Markets Hong Kong Ltd, said in a research note, "We view it as a signal of Ant's regulatory rectification wrap-up."

The consumer finance unit will be able to handle 1.1 trillion yuan in loans once the fundraising is complete, Qi said.

The major revamp of Ant includes disconnecting its payment app Alipay from sister credit products like Huabei and Jiebei, ending its monopoly on information collection, improving managing liquidity risks of important fund products and reducing the balance of its money market fund Yu'ebao.

Su Xiaorui, a senior analyst with consultancy Analysys, said: "The authority has sent a clear signal to support the development of platform companies and Ant's latest move is expected to inject vitality into the consumer finance industry."