Spanish oil giant Repsol yesterday threatened to go for international arbitration after the Argentinean government announced that it would seize control of the country's oil and gas company YPF.

Argentine President Cristina Fernandez de Kirchner yesterday unveiled plans of tabling a bill to expropriate the 51 per cent stake in YPF held by Repsol, which if passed, would be the biggest re-nationalisation in the oil and gas industry after the Russian government seized control of Yukos in 2003.

An official from the Argentine government read out a statement saying, YPF had been "declared a public utility and subject to expropriation of 51 per cent of its assets."

Within minutes of the announcement, Kirchner appointed planning minister Julio De Vido to head YPF with immediate effect and Argentine government's representative on the YPF board Roberto Baratta, arrived at YPF headquarters and barred Spanish executives from entering the office.

Spain retaliated immediately by recalling its ambassador to Argentina and vowed "clear and strong" measures over what it called a hostile decision.

Mexico's President Felipe Calderon also came on strongly and said that future foreign investment in Argentina would be hurt if Repsol's stake in YPF is seized. Mexico's state oil monopoly Pemex holds a 10-per cent stake in YPF.

Repsol's Argentine partner, Grupo Petersen, which holds a 25.5 per cent stake in YPF, will not be affected by the nationalisation.

Venezuela, which nationalised nearly all energy companies during the past 13 years of President Hugo Chavez's socialist rule, applauded Argentina's move.

"Venezuela rejects the threats and attempts at intimidation from Europe ... and calls on all the sisterly nations of the continent to accompany Argentina in the exercise of its sovereign rights," its Foreign Ministry said in a statement.

Madrid-based Repsol, whose shares plunged by 8 per cent in early morning trading yesterday, said it would seek international arbitration over its stake in YPF and seek at least $10.5 billion in compensation.

Repsol said the company would examine all legal actions to defend the interests of its shareholders. ''This is gravely discriminatory and manifestly illegal.'' "These acts will not remain unpunished," Repsol executive chairman Antonio Brufau told reporters.

Buenos Aires-based YPF produces about a third of the country's oil and a quarter of its gas. It has 26 onshore and offshore exploration blocks and 91 production areas.

Repsol acquired 97.81 per cent of YPF in 1999 and has since sold stakes to Grupo Petersen, Lazard Assets Management and through private placements and share offerings.

YPF represents 42 per cent of Repsol's total reserves, and accounted for about 35 per cent of revenue and more than 60 per cent of its oil production until last year.

Since weeks, speculation has been rife that the Argentinean government could buy a stake in YPF or even nationalise it.

The Argentinean government has been criticising Repsol for not investing enough in Argentina and instead paying too much of its profits in dividends. It withdrew 15 oil leases, representing 18 per cent of YPF's crude production, for failing to develop them.

Its recent proposal to invest a record $3.4 billion in YPF was rejected by the Argentinean government as too low.

Fernandez justified seizing shares held exclusively by Repsol, saying that energy was a "vital resource."

"If this policy continues - draining fields dry, no exploration and practically no investment - the country will end up having no viable future, not because of a lack of resources but because of business policies," she said.

The Argentinean government says that since Repsol took over YPF in 1998, the country has seen a 54 per cent decline in reserves and production.

Compensation will be determined by the Argentine National Appraisal Tribunal, which will be far less than the $10.5 billion Repsol is seeking and would come after years of litigation.