A high-profile legal dispute between India's billionaire Ambani brothers was disrupted on Wednesday when a judge withdrew from a Supreme Court hearing, citing potential conflict of interest.

The hearing is expected to continue on Thursday, but arguments will have to begin again from scratch before a new bench, potentially delaying a verdict in a case that has unnerved investors and clouded the outlook for India's biggest conglomerate.

The Supreme Court began hearing arguments on October 20 in a case that involves a deal by Mukesh Ambani-controlled Reliance Industries to sell gas to Reliance Natural Resources, led by his estranged younger brother Anil, at below the price set by the government.

The court will determine whether Reliance Industries stands to make or lose billions of dollars on sales of gas from its major find in the Krishna Godavari Basin off India's east coast.

In an order, the Supreme Court said Justice R.V. Raveendran had recused himself and the Chief Justice would constitute a new bench.

Sonam Udasi, vice president at BRICS Securities, said the withdrawal of the judge was a "further indication that the case will be a long-drawn affair".

At 0815 GMT, shares in Reliance Industries were up 4.7% after sliding nearly 6% on Tuesday. Reliance Natural climbed 2% in a Mumbai market that rose 2.6%.

Reliance Industries had been expected to wrap up its initial arguments on Wednesday, but will now have to start afresh.

Reliance Natural will then present its case, and argue against a government petition to become a party to the dispute. The government has said it is the owner of the gas.

"The hearing will continue tomorrow, 100%," Mahesh Agarwal, a lawyer for Reliance Natural said by telephone. "Arguments will again begin from scratch."

A source at Reliance Industries, who did not want to be named, also said the case would resume on Thursday, with its counsel restating its initial arguments.

Raveendran, who was on a three-judge bench that includes Chief Justice K.G. Balakrishnan, said he would stand down as his daughter worked at a firm that was a consultant to Reliance Industries.

At the start of the hearing last month, Raveendran had said he owned an equal amount of shares in both Reliance Industries and Reliance Natural. Lawyers for both firms said then they had no objection to him being part of the case.

(Additional reporting by Venkat Raman in NEW DELHI; Editing by Ranjit Gangadharan and Ian Geoghegan)