The new regulations, published on the website of the State Administration of Foreign Exchange (SAFE), did not specify a new top limit, merely that the funds can apply to invest over $1 billion.

The policy is aimed at sovereign wealth funds like Qatar Holdings and the Hong Kong Monetary Authority, both of which have already been approved to invest up to $1 billion each through QFII.

SAFE will retain the right to approve or deny individual applications on a case-by-base basis.

Chinese regulators have said in the past that facilitating increased foreign investment in Chinese assets will help restore confidence in China's stock markets, which have declined by over 60 percent since November 2007.

But the total amount of foreign money allowed to enter the domestic stock market remains small, and the new rules do not increase it.

Combined foreign investment in China's stock market accounts for only 1 percent of total market capitalization.

The overall net quota for the QFII programme remains at its current $80 billion, of which SAFE has only allocated $36 billion for use by QFII funds as of November 30.

Foreign appetite for Chinese equities has shown some signs of increase in recent months, especially in Hong Kong, but the weak performance of stock-focused QFII funds - and complaints about high fee structures - has dampened appetite. (GRAPHIC: Comparison of QFII fund performances in China link.reuters.com/xun34t)

To drum up additional interest, Chinese regulators, including officials from the Shanghai and Shenzhen stock exchanges, went on an overseas tour in September to advocate for Chinese equities and QFII in particular.

The new regulations also relax restrictions on the ability of funds to remit principal and income from investments, but made no further clarifications as to how China will tax QFII profits, an area of enduring uncertainty for QFII investors.

Chinese stock markets on Friday had their biggest single-day jump since 2009, which some analysts attributed to expectations of further relaxation of rules on foreign investment in stocks.

Others, however, offered alternative explanations for the unusual jump, such as behind-the-scenes share buybacks by state-owned entities trying to engineer a rebound for the end of the year.

(Editing by Michael Perry)

• A Permanent Economic Emergency