SACRAMENTO (Reuters)—Logging company Sierra Pacific Industries Inc. agreed to pay the United States $122.5 million in damages to settle a lawsuit over a 2007 wildfire that was among the most devastating in California history, the U.S. Department of Justice said Tuesday.

The settlement is the largest ever received by the United States for damages caused by a wildfire, the so-called Moonlight Fire that charred 65,000 acres in September 2007.

The blaze was sparked by employees of the logging company and a contractor who struck a rock with a bulldozer, prosecutors said, sending sparks into the dry ground on a day for which the National Weather Service had issued a red flag warning, indicating a high fire danger.

The smoldering fire went unnoticed because the employees skipped a company-required fire patrol, prosecutors said.

"Instead, the designated fire watch left the work area and drove 30 minutes away to get a soda. When he returned over an hour later, there was a 100-foot wall of smoke billowing from the work area," the Department of Justice said in a statement.

Sierra Pacific Industries denied responsibility for the fire but could not be reached for comment on Tuesday.

The settlement will include a $55 million cash payment and 22,500 acres of land in California owned by Sierra Pacific. The U.S. Forest Service will choose the land, which prosecutors said is expected to bridge gaps between existing national forests and will support critical watersheds and sensitive species habitats.

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The Moonlight Fire scorched more than 46,000 acres of national forests in September 2007, killing more than 15 million trees on public land, some of which were more than 400 years old. It also destroyed thousands of acres inhabited by sensitive species including the California spotted owl.

"The Moonlight Fire was a devastating blow to National Forest land here in California," U.S. Attorney for the Eastern District of California Benjamin B. Wagner said in a statement.

"What was lost was priceless and will not return for over a century. The recovery in this case will help start the process of making the public whole."

Sierra Pacific Industries owns nearly 1.9 millions acres of timberland in California and Washington state and is the second-largest lumber producer in the United States, according to the company.