Spain's competition watchdog presented draft regulation in July cutting the fixed rates of return on such investments, prompting a sharp sell-off in gas company stocks.

Naturgy said it was starting negotiations with labour unions on the consequences of the regulator's move, which had already prompted it to halt investment in the network run by the distribution company, which is called Nedgia.

"Faced with the uncertainty created, the company ... is obliged to carry out this temporary measure at Nedgia, until the definitive text of the regulation is made public," the company said in a statement.

The company added it would continue to respond to client enquiries and teams employed to do so would not be affected.

The regulator's proposals are open for public consultation until the end of September, and may be changed before a 2020 deadline to set binding rules.

(Reporting by Isla Binnie; editing by David Evans)