The European Commission in the form of its internal market chief, Charlie McCreevy, has threatened France with legal action if it goes ahead with its protectionist plans.

In an interview in Rome, where he is attending an economics forum, Mr McCreevy said: "We will be vigilant as a commission that this will not be allowed because it would spell the end of the free market as we know it."

His comments came in response to reported plans by the French government to ban foreign takeovers.

"We made it quite clear to the French authorities that it can only be in very specific, limited circumstances," said the commissioner, who added that he would sue any of the 25 member states that attempted to resurrect barriers to free trade.

This is the commission's first direct challenge to the French government after it listened to Paris make a series of statements about protecting its key industries.

The protectionist moves, announced by Dominique de Villepin soon after he became prime minister, were prompted by a possible takeover of French food giant Danone by US company PepsiCo.

France has also drawn up a provisional list of 10 "national champions", companies that it wants to protect from foreign takeover - including key defence and biotechnology companies.

Under EU rules, member states may protect industries that take part in public security or the defence of public health.

However, Brussels has been wary that France will stretch the interpretation of these rules to their outer limits.

Mr McCreevy's statements are likely to fuel the bad relations between Paris and Brussels, which have been tense since the new commission came into power last autumn.

French president Jacques Chirac fell out with Jose Manuel Barroso, head of the European Commission, in the run-up to the French referendum on the constitution, because the commission was perceived as being too neo-liberal.