SAO PAULO, Jan 29 (Reuters) - Brazilian retailer Magazine Luiza late on Sunday said its board of directors had approved a private capital increase of 1.25 billion reais ($254.23 million) aimed at "optimizing" the company's capital structure.

As part of the transaction, Magazine Luiza's controlling shareholders - the billionaire Trajano family - will inject up to 1 billion reais into the company, while lender BTG Pactual committed to invest up to 250 million reais.

Magazine Luiza was once a market favorite due to the growth of e-commerce in Brazil but saw its shares plunge roughly 93% since late 2020 as the economy stumbled, inflation rose and monetary policy was tightened.

The private capital increase will happen via 641 million common shares priced at 1.95 real each, the retailer said in a securities filing, a 6.25% discout over its Friday closing of 2.08 reais.

The money raised will also be used by the company to speed up investment in technology, it added, including enhancing its marketplace platform.

"The capital increase represents a relevant transaction for the company's strategic positioning," Magazine Luiza said, "as it is a way for the controlling shareholders to demonstrate their confidence in the company and its business model."

Magazine Luiza, one of Brazil's largest retailers, has a market cap of 14 billion reais, according to LSEG data. ($1 = 4.9168 reais) (Reporting by Gabriel Araujo, Editing by Louise Heavens)