The European Commission has adopted a radical plan that could force EU energy firms to sell off electricity grids and gas pipelines in an effort to boost competition.

But it has also announced proposals to shield European firms from being bought up by big international energy conglomerates, such as the Russian energy giant Gazprom.

At a meeting yesterday, the EU executive agreed to press states to separate the operation of electricity and gas transmission networks from supply and generation. It said its preferred option was "ownership unbundling", which would force energy companies to sell off their gas pipelines and electricity networks to separate firms.

Commission president José Manuel Barroso said that, without change, distortion of competition, fragmentation of the market and high consumer prices would continue.

"If a company sells electricity and gas and at the same time owns the networks, it has every incentive to make sure that its competitors do not get fair access to its grid," he said. "This not only prevents competition from working, it threatens our longer-term security of supply and prevents new renewable companies from starting up."

But the commission also proposed an alternative to EU states because of opposition to "unbundling" from France, Germany and Italy, which are threatening to block the energy package to protect their energy firms.

This option would allow the big vertically integrated EU energy firms such as Gaz de France, EON and ENI to retain ownership of their network assets but they would place their infrastructure assets under the control of a separate entity, known as an Independent System Operator (ISO). The ISO would manage the network assets without any input from the parent under the supervision of a regulator to ensure it offered access to infrastructure in a non-discriminatory manner.

Competition commissioner Neelie Kroes said the ISO route was clearly a second best option because it would increase bureaucracy by relying on regulation. She also highlighted that electricity prices were 29 per cent higher in 2006 compared to 1998 in states where distribution cables are owned by firms that also sell electricity. The increase was just 6 per cent in those member states that had embraced "unbundling".

But the commission faces an uphill struggle to persuade states to sanction the energy package.German economy minister Michael Glos criticised the EU package yesterday warning it endangered the "high quality and security of German electrical power networks".

Meanwhile, the French nominee to the commission Jacques Barrot, failed in a last-ditch attempt to water down the package yesterday. But French president Nicolas Sarkozy could prove a tough foe when the package is debated by EU states at the council of ministers.

A qualified majority of states is required to get it accepted.

The energy package also contains a controversial proposal to shield EU firms that own energy infrastructure from being acquired by non-EU companies.

This clause was inserted largely to stop big conglomerates such as Gazprom from buying up infrastructure assets that would give them too much leverage over the EU market. If the package is adopted, foreign firms that want to control European assets will have to be based in countries that have signed a bilateral energy deal with the EU. Such a bilateral agreement would ensure that the firm's home energy market was also open to European investment.