Egypt's government said on Sunday it had approved a legal committee's plan to resolve a land row around the country's biggest listed developer's flagship project.

The state would scrap the original contract for Talaat Moustafa Group's (TMG) estimated $3 billion Madinaty project and reassign it to the firm by direct order, the government said.

A court had earlier ruled that the contract with TMG should be scrapped because it was illegal.  

Meanwhile, cabinet spokesman Magdy Rady said in a statement that the cabinet was reviewing establishing a new mechanism to manage land sales.

He said Prime Minister Ahmed Nazif sought a new framework "putting in place a clear time frame to take account of all land both used and unused, setting in place the necessary foundation for the allocation of land to the various sectors and pricing them transparently and in a coordinated fashion."

Egypt's government sold land to TMG for its estimated $3 billion Madinaty project in 2005. A court ruled in June the deal was illegal because the land was not publicly auctioned.   

A higher court upheld the decision this month, sending the firm's shares plunging 16 percent in three sessions. The government has since come under pressure from investors in TMG to find a resolution to the row.

A state-appointed legal committee issued recommendations last week, that have been sent to the cabinet, saying the government could reassign the land to TMG after scrapping the original contract because it was in the public interest.

Rady said in his statement the review of land allocation would affect all sectors on the economy.

Alongside allocating state land to be sold for housing and business development, the government assigns land for a range of other uses, including agriculture, tourism and public services. -Reuters