By Daniel Wiessner

(Reuters) - Former Fox News Channel Chairman Roger Ailes on Monday dropped a bid to move a sexual harassment lawsuit by a former anchor from New Jersey to a federal court in New York.

In the lawsuit filed last month in federal court in New Jersey, Gretchen Carlson accused Ailes of repeatedly propositioning her for sex and said he terminated her contract in June after she refused his advances. Ailes, who resigned in the wake of the lawsuit, has denied the allegations.

On Monday, lawyers for Ailes and Carlson said in a court filing that Ailes would drop his petition to move the lawsuit to federal court in Manhattan.

A lawyer for Ailes, Barry Asen, said in an interview that he would now ask the judge overseeing the case to send it to arbitration in light of an agreement Carlson signed with Fox News.

"We're trying to avoid a lot of excess litigation" by keeping the case in New Jersey, Asen said.

Monday's agreement must be approved by U.S. District Judge Jose Linares in Newark.

Carlson's lawyer, Nancy Smith, could not immediately be reached for comment.

Last month, Smith in an interview said Carlson filed the case in New Jersey because it was easier to travel there from her home in Greenwich, Connecticut.

Ailes owns a mansion in Cresskill, an affluent suburb in northern New Jersey.

After the lawsuit was filed, Fox News retained a prominent law firm to conduct an internal review into whether Ailes harassed other women at the top-rated cable news channel.

New York magazine and other news outlets have reported similar allegations by other women, many of which are decades old and stem from Ailes' time at other networks.

Rupert Murdoch, the 85-year-old executive chairman of Fox News parent Twenty-First Century Fox Inc <FOXA.O>, will assume Ailes' role on an interim basis, the company said when Ailes resigned on July 22. Ailes reportedly will be kept on as an informal adviser and receive $40 million in severance.

The case is Carlson v. Ailes, U.S. District Court for the District of New Jersey, No. 2:16-cv-04138.

(Reporting by Daniel Wiessner in Albany, New York; Editing by Jonathan Oatis)