British Energy could soon fall to one of its European rivals, the nuclear generator admitted yesterday.

The company, which is 35 per cent owned by the Government, said that it was in talks with several potential partners about a range of options, including a full takeover, a scenario that could kickstart the building of new nuclear power stations in Britain.

EdF, the French nuclear power giant, Germany's RWE and E.ON are thought to be the leading contenders for the British company. Spain's Iberdrola is also believed to be in the running. EdF owns power stations in the UK and the electricity suppliers London Electricity, Seeboard and Sweb and has been involved in collaborative discussions with British Energy for several months.

EdF is seen as the front-runner because of its expertise in nuclear power. British Energy runs eight nuclear generators in the UK while EdF operates more than 60 in France. Nearly 80percent of France's power is produced by nuclear generators and the company is in the process of building new capacity.

A full takeover by EdF would be controversial because of its large presence in the UK and because of the difficulty of a British company executing a similar takeover in France. Lakis Athanasiou, an analyst at Evolution Securities, said that the Government would be more likely to favour one or more companies taking a stake in British Energy. “It is difficult to see government wanting to face the political difficulties of placing the entire UK nuclear industry in the hands of a single foreign company,” he said.

The Government said it was keeping its 35percent stake, which is worth more than £2billion, under review. Its stake is a hangover from its rescue of the business six years ago when weak power prices pushed it to the brink of collapse.

The Government has appointed UBS to advise it on the commercial aspects of building a new generation of nuclear power. These will be built on existing British Energy sites in southern England to maximise existing infrastructure and reduce planning issues. Under this plan, the incumbent producer will have a key role in new nuclear build in the UK.

British Energy would not comment on the takeover talks. though it said that it has been in detailed talks with a number of companies about possible collaboration.

In a statement to the London Stock Exchange in response to market speculation about a deal, it said: “The board announces that the company is in discussions with interested parties in the context of its future and its plans to take a pivotal role in any new nuclear programme. These discussions could lead to a business combination or an offer for the company, although there can be no certainty that any offer will be made.”

The Government cleared the way for the next round of nuclear generation in January after it finished a public consultation period forced on it by a legal challenge from Greenpeace.

However, it has emphasised that there will be no public money available for the new stations. At a minimum, Britain needs to replace its current stock of generation, but the Government has also signalled that it sees nuclear playing a stronger role in the energy mix than its current level of about 20percent. Nuclear power will help the Government to achieve its carbon emissions targets and provide a domestically generated source of power, reducing the UK's dependence on imported gas and oil.

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