WASHINGTON (Reuters) - The Senate Finance Committee on Wednesday approved an $850 billion increase in U.S. borrowing authority to $9.815 trillion in order to avoid a default as the government nears its credit limit of $8.965 trillion.

The committee approved the bill on a voice vote and it clears the way for the full Senate to take action most likely by early October. As of last Friday, the federal debt stood at $8.923 trillion and Treasury Secretary Henry Paulson has been urging Congress to act quickly to avoid unnerving financial markets that are already jittery over rising mortgage foreclosures.

The amount approved by the finance panel would allow the government to continue borrowing into 2009, well after next year’s presidential and congressional elections. Finance Committee Chairman Max Baucus, a Montana Democrat expressed concern that the debt issue could “become a political football” during next year’s campaigns.

“The increase of $850 billion would be the third largest debt limit increase in U.S. history,” Baucus said.

The U.S. House of Representatives already approved the credit increase when it passed the 2008 budget blueprint earlier this year.

It will be the fifth increase in the U.S. credit limit since President George W. Bush took office in 2001 when the U.S. debt stood at $5.6 trillion.