By Karen Pierog

CHICAGO (Reuters) - Caesars Entertainment Corp <CZR.O> said on Wednesday it proposed along with its private equity backers a settlement offer with an added $1.6 billion for creditors of its casino operating unit, raising hopes of an end to the subsidiary's costly bankruptcy.

Caesars closed at $8.10 on Nasdaq, up 21.4 percent.

Apollo Global Management <APO.N> and TPG Capital Management [TPG.UL], the private equity firms that control the Las Vegas-based casino company, will fund the bulk of the deal by contributing their stock in Caesars, which was estimated to be worth $954 million.

The bankrupt unit, Caesars Entertainment Operating Co Inc or CEOC, filed for bankruptcy in January 2015. Creditors have alleged that the parent company, Apollo and TPG stripped CEOC of its best casinos, leaving it unable to pay its $18 billion in debt.

An independent examiner said in March Caesars and its private equity backers could be on the hook for more than $5 billion in potential damages for the deals that preceded the bankruptcy.

CEOC and its junior bondholders have been battling over the amount the parent company, Apollo and TPG must contribute in exchange for releases from creditors claims.

Caesars had previously offered more than $4 billion, while junior creditors say they have claims worth $12.6 billion which they have been pursuing against the parent in New York and Delaware courts.

In Wednesday's deal, Caesars, its directors and officers and its private equity backers will contribute $1.2 billion. Most of that will be in Caesars stock along with more than $100 million in cash from insurance.

The rest will come from reduced payouts to other CEOC creditors known as the first-lien banks and first-lien bondholders, who did not agree to the settlement.

The CEOC creditors have until the end of Friday to accept. If they do not, Caesars said "CEOC has indicated that Caesars Entertainment and the sponsors' support for the plan is superceded and unnecessary."

Opposition to Caesars plan has been led by junior bondholder Appaloosa Management, which did not immediately respond to a request for comment.

The revised settlement offer comes a week after the judge overseeing the bankruptcy ordered billionaire investors and Caesars directors Marc Rowan of Apollo and David Bonderman of TPG to disclose details of their wealth to the junior creditors.

The judge said they would have to show that they each have the financial resources to contribute to CEOC's reorganization plan, in exchange for releases from allegations of fraud.

(Reporting by Karen Pierog in Chicago; writing by Tom Hals in Wilmington, Delaware; Editing by Sandra Maler)