SINGAPORE, Feb 10 (Reuters) - Singapore Press Holdings (SPH) said it had decided to exercise its right to terminate bidder Keppel Corp's offer and will allow SPH shareholders to vote on a rival S$3.9 billion ($2.9 billion) bid from a tycoon-backed group.

"The board would like to update shareholders that, following consultation by the company with the Securities Industry Council(SIC) regarding the termination right, the SIC has ruled that it has no objections to the company's exercise of the termination right," SPH said in a statement late on Wednesday.

Conglomerate Keppel, which counts state investor Temasek Holdings (TEM.UL) as a major shareholder, said its fully-owned unit did not agree with SPH's move and it filed an arbitration notice with the Singapore International Arbitration Centre.

Keppel made an offer in August to buy SPH's global portfolio of property assets, student accommodation and elderly care homes.

But Cuscaden - a consortium of billionaire property tycoon Ong Beng Seng's Hotel Properties and two independently managed portfolio companies of Temasek - came up with a rival offer.

The rare bidding war between two groups linked to Temasek then resulted in Cuscaden making a higher offer that was backed by SPH's independent directors in November.

"With the latest SIC ruling, SPH and Cuscaden can move forward expeditiously to table the Cuscaden Offer for SPH shareholders to vote," Christopher Lim, Group Executive Director of Hotel Properties Limited and spokesperson for Cuscaden, said in a statement.

Cuscaden had offered around S$2.40 per share, or S$3.9 billion, while Keppel offered S$2.351 per share, or S$3.74 billion.

($1 = 1.3420 Singapore dollars)