France has chosen General Electric to form an alliance with Alstom - rejecting an offer from Siemens and Mitsubishi Heavy Industries - but said the deal still needed some work and added it would buy a 20 per cent stake in the hotly-contested company.

Economy Minister Arnaud Montebourg said he had used a newly-created state decree to reject both of the existing offers as not being in France's strategic interest, and had formulated fresh demands to GE chief executive Jeff Immelt.

The decision ended weeks of suspense surrounding one of Europe's fiercest industrial battles in years, but left open major questions about the final shape of an alliance which GE hopes will give it access to new power markets.

"The points we have raised with General Electric are precise and technical but necessary," Montebourg said after two days of talks involving the bosses of the three suitors, President Francois Hollande and top ministers.

He said France had demanded strict conditions "guaranteeing energy independence, job creation on national territory and maintenance of decision-making centres in France".

He said the offer from Siemens and MHI was "very serious" and that he had personally backed it, but that the government "had made up its mind".

Montebourg confirmed that Alstom's lucrative gas turbines arm would be purchased by GE and said there would be discussions on the shape of joint ventures in other energy areas ranging from renewables to nuclear.

He said the French state would come in as the top shareholder in Alstom by purchasing a 20pc stake in it from Bouygues, currently the holder of 29pc.

GE will sell its rail signalling business to Alstom as part of plans to strengthen the transport activities of the French group, maker of the famed TGV high-speed trains.

Montebourg said the signalling business was valued at "$1bn or euros, I am not sure". He gave no other valuation details during the news conference.

Alstom's sensitive nuclear activities will be held in a 50:50 venture with GE in which the French state would have a "golden share" giving it a veto, said the economy minister, a self-styled "economic patriot" from the French left.

Linking up with Alstom will allow GE to provide turbines for power stations and technology for electricity grids - something Siemens, eyeing Alstom's high-margin gas turbines for itself, and MHI wanted to prevent because it makes their US rival even stronger.

GE had radically overhauled its bid on Thursday, hoping to appease unions and politicians by transforming what had been largely a straight purchase into an offer of joint ventures similar to that of Siemens-MHI.

In response Siemens-MHI added 1.2bn euros to their offer for Alstom's energy business yesterday - taking their cash component to 8.2bn - and simplified the structure of the deal, hoping to see off GE ahead of Monday's deadline for an Alstom board decision on the company's fate.

Hollande's government blocked GE's initial advances on Alstom some two months ago and forced it to improve its offer by encouraging Siemens to enter the fray and giving itself the power to block industrial tie-ups in strategic areas.

Yet sources involved in the back-room discussions over the past seven weeks said it was not clear whether there was a single government line: several union representatives of Alstom and political sources said the saga had drawn a divide between Montebourg, who they said lent towards the Siemens-MHI plan, and Hollande, in favour of GE.-Reuters