UK regulators give green light to Sabadell takeover of TSB

* Sabadell says UK market has 'vast opportunities'

* TSB says takeover will bring more competition

LONDON, June 30 (Reuters) - Spain's Banco Sabadell has received approval from Britain's financial regulators for its 1.7 billion pound ($2.7 billion) takeover of Britain's TSB , increasing competition for the UK's biggest banks.

Sabadell, Spain's fifth-biggest bank, agreed to buy TSB earlier this year, saying it planned to grow it into a significant challenger to Britain's "Big 5" lenders.

British lawmakers and regulators want to break the dominance of Lloyds Banking Group, Royal Bank of Scotland (LSE: RBS.L - news) , Barclays (LSE: BARC.L - news) , HSBC and the UK arm of Spain's Santander, which together control more than four out of five personal current accounts in Britain.

Sabadell said on Tuesday the Prudential Regulation Authority and Financial Conduct Authority had approved the deal.

"This is a milestone that enables us to enter a market with vast opportunities," said Sabadell Chairman Josep Oliu.

Sabadell has said it may consider more acquisitions in Britain following the purchase of TSB, which is Britain's seventh-biggest bank.

"With the extra firepower and fresh perspective of Sabadell, TSB will be stronger and even better placed to build on its position as Britain's challenger bank," TSB Chief Executive Paul Pester said on Tuesday.

TSB, which already has 4.7 million customers, was spun out of Lloyds last year after Lloyds was ordered to sell the business by European regulators as a condition of its 20.5 billion pound bailout during the 2007-9 financial crisis.

($1 = 0.6358 pounds) (Reporting by Matt Scuffham; Editing by Mark Potter)