French electricity monopoly EDF has emerged as warm favourite to take over UK nuclear generator British Energy in a deal that could be worth more than £10 billion.

But City sources warned that a firm bid from EDF, which could come as early as today, could be trumped by offers from any or all of RWE of Germany, Iberdrola of Spain and French firm Suez.

EDF is reportedly close to landing the up-for-sale 35% shareholding in British Energy held by the UK Government, a legacy of the British taxpayers' bailout of the company four years ago.

An acquisition of that stake would trigger an automatic takeover bid for the rest of British Energy, which operates eight nuclear power stations around the country.

EDF, whose London-based communications director Andrew Brown is the Prime Minister's brother, has been at the forefront of the pro-nuclear build campaign in the UK. It has lobbied No 10 to be allowed to build four nuclear power stations in Britain at a cost of about £12 billion.

An EDF takeover of British Energy would throw up serious competition issues as, with its current ownership of UK power stations, it would have more than 25% of the country's generating capacity.

It could also cause a political storm as EDF has bought British companies such as London Electricity and Seeboard in the past decade, but UK companies have not been allowed into protectionist France.

City sources also warned that an acquisition of British Energy has been complicated because its shares, down 61/2p at 7081/2p today, have put a market capitalisation on the company way ahead of most analysts' fair-value estimates.