Shares in German utility E.ON fell sharply on the Frankfurt stock exchange yesterday in response to signs that its 41bn (about £28bn) takeover of Spanish power company Endesa could be in danger of unwinding after the Italian energy company Enel bought a 10% stake in Endesa and said it may boost its stake in the Spanish company to just under 25%.

Dusseldorf-based E.ON, which has a presence in the UK through its Powergen division, appeared to be caught off guard when Enel paid 4.13bn for a 9.9% stake in Endesa.

Enel is paying 39 a share, slightly higher than the 38.75 per share E.ON has offered for the entire company after a takeover fight with Gas Natural of Spain.

Enel said it was financing the deal with its own cash flow and existing credit lines.

The Rome-based company said it will consider raising its stake to 24.99% of Endesa's capital if approved by Spanish regulators.

In Madrid, Finance Minister Pedro Solbes said Enel's holding in Endesa would also need approval from the Spanish stock market regulator, known as the CNMV (Comisión Nacional de Valores), and its energy market regulator.

Solbes also said that current Spanish law would require the Spanish cabinet to approve the exercise of voting rights by a foreign state-owned company such as Enel.

However, he noted that such law has been declared illegal by the European Union.

Solbes said he had no previous knowledge of the deal, and would not comment on speculation that the move may have been agreed on at last week's summit between the Italian and Spanish leaders.

Spain's stock market regulator has asked Enel to provide details of its stake in Endesa.

Among the information sought by the CNMV is when Enel decided to acquire shares in Endesa and when and how the stake was acquired.

Enel must also disclose if it has bought any type of derivative or any other financial instrument related to Endesa's shares.

Enel said yesterday that it bought the shares from institutional investors and that the purchase was on a stand-alone basis without any connection to the other shareholders of Endesa. It offered no other comment.

E.ON, which tried and failed to buy ScottishPower in 2005, said it was not rattled by Enel's move, pledging its commitment to its pursuit of Endesa.

"E.ON will continue with its offer for Endesa in its current form irrespective of the reported purchase of shares by Enel SpA," the company said in a statement.

E.ON's bid for Endesa is conditional on the company's shareholders scrapping a voting rights restriction that limits the votes of any single shareholder to 10% of the total, regardless of its stake.

E.ON's bid had been opposed by Acciona, the biggest shareholder of Endesa, Spain's biggest power utility by market value.

Acciona wants Endesa to remain as an independent company.

Shares of E.ON slid nearly 6% in early dealing yesterday and later closed about 4% cheaper at 99.14. Enel shares fell 2% to 7.95.

In a statement, Enel said that the "shareholding acquisition in Endesa ... is part of the Italian company's strategy aimed at strengthening Enel's position on the European electricity market."

Before buying the stake in Endesa, Enel tried to acquire Suez, the French utility, but the takeover move was blocked by Paris.