The European Commission is set to clash with Spain over its decision to allow German utility E.ON to proceed with its takeover of Spanish group Endesa only if it sells off substantial parts of the business.

The Spanish energy regulator CNE approved E.ON’s bid for Endesa on the condition that it sells off about 7,600 megawatts of Endesa’s generating capacity in Spain. The commission has responded by saying that it needed to decide whether the Spanish government’s actions are compatible with EU law, and may take the government to court if it found the move to be illegal.

E.ON has protested that the sell-offs are too extensive. The CNE would force the Dusseldorf-based energy group to dispose of Endesa’s nuclear power plant and its coal-fired plants. E.ON reaffirmed that it had no intention of pulling out and reserved the right to take legal action.

The Spanish government is already facing EU court action over a decree made in the spring which gave the Spanish energy panel powers to shut out foreign takeovers. A merged E.ON and Endesa would create the world’s largest energy utility with more than E75 billion in annual sales and at least 50 million customers in some 30 countries in Europe, the US and Latin America.