The European Commission ordered France on Thursday to change a law that steps up protection against company takeovers from abroad because of concerns it may block investors from other EU countries.

"The commission is concerned that some of the provisions of this decree could discourage investment from other member states, in contradiction with EU ... rules on the free movement of capital and the right of establishment," it said in a statement.

If Paris fails to satisfy Brussels within two months, the commission said that it could open a case against the French government at the European Court of Justice.

In August 2005, the French government drew sharp criticism in France and abroad for drawing up a list of "strategic" sectors in which it could block hostile takeovers of a French firm by a foreign company.

The law requires special authorization for foreign takeovers in particularly sensitive sectors such as casinos, private security firms, antidotes makers, equipment for intercepting communications and some computer security systems.

It went into effect last December but has not yet been used in action.

France has made clear it prefers so-called "national champions" with big foreign interests to emerge out of big French groups in sensitive areas of the economy, rather than trans-national groups resulting from foreign takeovers.

Hostile takeover bids are often portrayed in France as an unwelcome and aggressive feature of so-called "Anglo-Saxon" capitalism.