Your idea isn't very clear to me at this moment, but it sounds quite similar to LF2 extended. I may just as well be completely wrong as you haven't provided a clear idea yet. I'm looking forward to seeing your idea a bit further explained
I must say though, apart from the legal rights that may be a problem, a game named Little Fighter 3 can not be just a modification of LF2 in my opinion. It would require everything to look better and the engine should be smoother and more complex, plus it shouldn't use the original sprites unless they were to be made MUCH better. Else it would 'just' be an LF2 mod, which is fine, but then call it LF2 '....' and not LF3
I must say though, apart from the legal rights that may be a problem, a game named Little Fighter 3 can not be just a modification of LF2 in my opinion. It would require everything to look better and the engine should be smoother and more complex, plus it shouldn't use the original sprites unless they were to be made MUCH better. Else it would 'just' be an LF2 mod, which is fine, but then call it LF2 '....' and not LF3