SACRAMENTO (Reuters) - California lawmakers approved a measure making it easier to use alternative currencies including Bitcoin, even as the failed Tokyo based bitcoin exchange, Mt Gox, moved forward into bankruptcy protection.

The Bill approved Monday would repeal what backers said was an outdated law prohibiting commerce using anything but US currency.

"This Bill is intended to fine-tune current law to address Californians' payment habits in the mobile and digital fields,"said the Bill's author, Democratic Assemblyman Roger Dickinson in a press release.

He cited the popularity of Bitcoin, and said even gift cards and reward points from retailers could be considered illegal under the current law.

"In an era of evolving payment methods, from Amazon coins to Starbucks Stars, it is impractical to ignore the growing use of cash alternatives," Mr Dickinson said.

Mt Gox, once the world's leading exchange for Bitcoin trading, shut its website earlier this year after saying it had lost some 850,000 bitcoins - worth more than US$500 million (S$625 million) at current prices - in a hacking attack. It subsequently said it had found 200,000 bitcoins.

The company filed for Chapter 15 bankruptcy protection in March to prevent US customers who had filed a class action lawsuit from seizing its US assets, such as computer servers, and demanding evidence and access to Mt Gox executives.

Last week, it received approval to begin Chapter 15 bankruptcy proceedings in the United States.

Mr Dickinson's Bill now goes to California Governor Jerry Brown, a Democrat, for his approval or veto.