NEW YORK/HOUSTON (Reuters) - A U.S. judge upheld the validity of Venezuelan state oil company PDVSA's 2020 bonds on Thursday, prompting a judge in another court to move towards the completion of an auction of shares in the parent of Venezuela-owned U.S. refiner Citgo Petroleum.

The bonds are secured by a majority stake in Citgo, which is ultimately owned by Caracas-headquartered PDVSA. The state oil company defaulted on the bonds in 2019, putting the Houston-based refiner at risk of seizure by creditors. 

For years, bondholders and companies expropriated in Venezuela have clashed in U.S. courts in pursuit of the country's overseas assets, especially its crown jewel Citgo, after winning arbitration cases.

After Washington sanctioned PDVSA in 2019 as part of its push to oust Venezuelan President Nicolas Maduro, Citgo severed ties with PDVSA and the refiner's control was taken over by Venezuela's political opposition through supervising boards.  

The opposition has been trying to protect Citgo and other assets from creditors seeking redress for defaulted debt or expropriated assets. The opposition had argued that the 2020 bonds were not properly issued under Venezuelan law. 

On Thursday, U.S. District Judge Katherine Polk Failla in Manhattan ruled that the bonds were indeed properly issued. She had declared the bonds valid in 2020, but an appeals court later ordered further review. 

"Today's decision is as bad as the previous one, and we will appeal it. We have plenty of grounds for that," said Horacio Medina, head of a board supervising Citgo.

After Failla's ruling, the final hearing of a separate auction of shares in Citgo's parent before U.S. District Judge Leonard Stark in Delaware was temporarily suspended to allow the court to review the impact of the New York judge's decision.

The auction, in which 15 companies and noteholders are pursuing Citgo's assets, is expected to determine the future of the seventh-largest U.S. refiner. Frontrunners include a unit of miner Gold Reserve ( GDRZF ) and Amber Energy, an affiliate of hedge fund Elliott Investment Management. A decision on the winner is pending.

Failla's decision is expected to help untangle the auction, which has seen three bidding rounds since last year, lawyers and experts said.

After the hearing resumed hours later, Judge Stark denied Gold Reserve's ( GDRZF ) motion to disqualify Amber's bid and instructed a court officer overseeing the auction to terminate a stock purchase agreement with the miner and sign a new one with Amber to move the process forward, Gold Reserve ( GDRZF ) said in a release.

The move had been requested this week by court officer Robert Pincus and some creditors in favor of Amber's bid, which includes a $2.1 billion pact to pay the bondholders.

Other parties had proposed that Judge Stark keep both offers on the table.

Gold Reserve ( GDRZF ) said it was expecting a written opinion and order from the court shortly. Amber did not reply to a request for comment. Representatives of the 2020 bondholders declined to comment.

The Delaware sale hearing finished on Thursday after more than 30 hours of testimony and questioning.