**Core Concept**
Bile ducts play a crucial role in the transport of bile from the liver to the small intestine. Cholestasis in the newborn can occur due to impaired bile flow, leading to jaundice. The most common cause of cholestatic jaundice in newborns is related to an anatomical obstruction of the bile ducts.

**Why the Correct Answer is Right**
The MC cause of cholestatic jaundice in newborns is biliary atresia, a condition characterized by the absence or destruction of the bile ducts. This leads to a complete obstruction of bile flow, resulting in the accumulation of bilirubin in the blood and tissues. Biliary atresia is often associated with a fibrotic reaction and chronic inflammation of the bile ducts, which eventually leads to scarring and obliteration of the ducts.

**Why Each Wrong Option is Incorrect**
* **Option A:** Neonatal hepatitis is a condition that affects the liver, causing inflammation and damage to liver cells. While it can lead to jaundice, it is not the most common cause of cholestatic jaundice in newborns.
* **Option B:** Choledochal cysts are congenital anomalies of the bile ducts that can cause obstruction and cholestasis. However, they are relatively rare compared to biliary atresia.
* **Option C:** Hypoplasia of the pancreas can lead to pancreatic insufficiency, but it is not a direct cause of cholestatic jaundice in newborns.

**Clinical Pearl / High-Yield Fact**
Biliary atresia is often associated with a "triad" of symptoms: jaundice, pale stools, and abdominal distension. Early diagnosis and surgical intervention are critical to prevent progression to cirrhosis and liver failure.

**Correct Answer:** C.