NEW YORK, Feb 2 (Reuters) - A 2007 securities-fraud class action lawsuit brought by shareholders against Motorola Solutions reached a $200 million settlement, court records show.

The parties entered into the settlement on Tuesday in a federal court in Illinois. The settlement is still subject to court approval, according to the records.

Shareholders had claimed that Motorola artificially inflated its stock by hiding information about its ability to compete in the cellphone market. Motorola denied the allegation.

The litigation commenced before Motorola Inc split into two companies in January last year. Motorola Solutions inherited the litigation.

"We're pleased to have this behind us as it removes the risks and distractions of this litigation," said company spokeswoman Tara McWhinney.

The lead plaintiffs in the case were the Macomb County Employees' Retirement System and St. Clair Shores Police and Fire Pension System.

In a written statement their attorney, Samuel Rudman of Robbins Geller Rudman & Dowd, said the settlement was "an extraordinary recovery for investors in a case where there was no financial restatement or SEC investigation."

Motorola's McWhinney said that the settlement amount is covered by a combination of previously booked reserves and insurance. The reserves were reported in the company's earnings release last week.

The case is Silverman et al v. Motorola, Inc., U.S. District Court for the Northern District of Illinois, No. 07-04507.

For plaintiffs: Keith Park of Robbins Geller Rudman & Dowd.

For Motorola: Robert Kopecky of Kirkland & Ellis.

(Reporting by Rebecca Hamilton)

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