Jan 23 (Reuters) - The Australian government said on

Thursday it would buy A$50 million dollars ($31.36 million) of

debt from the largest creditor of collapsed airline Regional

Express Holdings to have more control during a

voluntary administration process.

The acquisition from Asian private equity house PAG Asia

Capital would make the government Rex's principal secured

creditor and keep the airline serving Australia's rural towns,

Transport Minister Catherine King and Finance Minister Katy

Gallagher said in a statement.

It is "an important step to prevent an adverse outcome for

regional communities, such as liquidation, and ensure the

continued connectivity of Australia's regional and remote

communities," the statement said.

Rex entered voluntary administration in July, cutting

hundreds of jobs and grounding its Boeing 737 flights between

Australia's major cities, though it continues to operate flights

to and from rural areas.

It owes about A$500 million to 4,800 creditors after failing

to compete with Qantas and Virgin Australia, which

together control 98% of the domestic market.

The government's A$50 million acquisition comes on top of a

A$80 million loan in December to keep Rex's regional routes

running as administrators Ernst & Young search for a suitable

buyer.

King and Gallagher said the government had also guaranteed

regional flight bookings during administration and facilitated

early access to entitlements for former employees.

Australia's workplace relations department has already paid

out A$7.1 million in 302 claims lodged by former employees, the

statement added.

($1 = 1.5944 Australian dollars)