By Gary McWilliams and Marianna Parraga

HOUSTON, Nov 27 (Reuters) - An auction of shares in a Citgo Petroleum PDVSAC.UL parent to pay claims against Venezuela needs to be overhauled, a court adviser recommended on Tuesday, conceding a year-long sale process was in shambles and needed to start fresh.

U.S. District Court in Delaware is auctioning shares in PDV Holding to repay $21.3 billion in claims against Venezuela and state-oil firm PDVSA for expropriations and debt defaults.

The recommendation in a court filing came after an up to $7.3 billion bid by an affiliate of activist fund Elliott Investment Management failed to win support from creditors. At least two groups had told the court they could present offers if allowed to re-enter the bidding contest.

Court adviser Robert Pincus proposed to re-launch the auction after being admonished by the judge for a lack of an agreement that met terms set more than a year ago. The adviser had granted Elliott exclusive negotiating rights and would have let it defer payments, conditions that creditors said unduly favored Elliott.

Elliott's wholly owned affiliate, Amber Energy, which in September was named the original auction's winner but never concluded a deal, said in a court filing the proposed terms "will create a chaotic environment that will negatively impact the purchase price."

Amber had previously said it would walk away if the judge in the case rejected its terms. A spokesperson declined to immediately comment on its next steps.

The adviser's plan for starting afresh largely followed Judge Leonard Stark's prescription for how to revive the sale. But Special Master Robert Pincus recommended against Stark's suggestion that cases seeking the same assets go ahead, saying other bidders likely would not accept the risk of rival claims.

Pincus proposed to reopen to bidders Citgo financial and operational data and formally re-launch the auction on Dec. 18 and accept bids for three months. A final recommendation to the court could come in April with judge Stark holding a hearing to confirm any winner in late May, he proposed.

(Reporting by Marianna Parraga and Gary McWilliams in Houston; Editing by Christopher Cushing)

((Gary.McWilliams@thomsonreuters.com; +1 469-691-7668;))