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Outgoing National Lottery operator Camelot has dropped a legal challenge which was preventing the handover of the lottery licence to rival Allwyn.

Allwyn has ended its counter-claim against Camelot for damages due to delaying the £6.4bn contract.

But Camelot, which started running the lottery in 1994, is still taking legal action against the Gambling Commission for giving the licence to Allwyn.

The Gambling Commission has said it had run a .

After losing out on the next licence which starts in February 2024, Camelot launched a legal challenge in April, claiming that the Gambling Commission had got the decision "badly wrong".

This led to the transfer of the licence to be blocked automatically.

The Gambling Commission asked the High Court to overturn this block, warning it could cause disruption to the lottery, meaning good causes would lose out on funds.

In late June, the court agreed to lift the suspension preventing the licence transfer, but Camelot appealed. It is this legal action which has now been dropped.

Camelot said: "It has become clear that the potential damages covered by the undertakings needed for the appeal to proceed would have been too large, and involved too great a commercial risk, for it to be reasonable to provide them."

However, Camelot is still pressing ahead with its main legal claim challenging the decision to award the lottery licence to Allwyn.

A trial is set to go ahead in January or February, and Camelot is expected to sue the regulator for an estimated £500m damages.

Camelot said it "will now co-operate with Allwyn and the Gambling Commission to facilitate an orderly transition to the fourth licence".

it "looks forward to cooperating with Camelot and the Gambling Commission on the transition process".

Allwyn Entertainment was formerly known as Sazka. The lottery operator is owned by Czech oil and gas tycoon Karel Komarek.

The National Lottery is one of the world's largest lotteries and has raised more than £46bn for good causes across the UK.

It has also played a part in funding training and facilities over the past three decades for Great Britain's Olympic and Paralympic athletes.