By Jim Christie and Peter Henderson

SAN FRANCISCO (Reuters) - A federal bankruptcy judge on Friday cleared the way for Stockton, California to cut health care benefits for retirees while it is in bankruptcy proceedings.

Stockton is seeking Chapter 9 protection from its creditors and said that it would cut retiree health benefits while it reorganizes. Retired employees sued to stop those cuts.

Judge Christopher Klein on Friday issued a temporary order denying the bid to stop the benefit cuts, and he said a formal decision was on its way.

Stockton's attorneys had argued that bankruptcy law gave the city wide latitude on how to spend its revenue while it prepares a plan to restructure its finances.

"For the reasons explained in the forthcoming decision of this court, the Application for Temporary Restraining Order and Preliminary Injunction or in the Alternative for Relief from Stay is DENIED," Klein wrote.

"A further order will be entered contemporaneous with the formal decision," the temporary order said.

The case in U.S. Bankruptcy Court, Eastern District of California, is an adversary proceeding, 12-02302, associated with the main bankruptcy case, 12-32118.

(Editing by Carol Bishopric)