(Adds details of Spanish law on M&A in paragraph 2 and Catalan opposition to merger in paragraphs 10-11)

MADRID/BARCELONA, May 9 (Reuters) - Spain's government opposes BBVA's hostile takeover bid for its smaller rival Sabadell, its Economy Minister Carlos Cuerpo said on Thursday.

Under Spanish law, the Economy Ministry has the last word in approving any merger or acquisition of a bank. The government has six months to decide after consulting with regulators including the Bank of Spain and the securities regulator CNMV.

BBVA, Spain's second-largest bank on Thursday presented a 12.23 billion euro ($13.11 billion) takeover bid directly to Sabadell's shareholders after its target's board earlier this week rejected the proposal on the same terms.

Cuerpo said the government considers the combination of the two banks would have potentially harmful effects on the Spanish financial system and would impact jobs and customers.

"We are right now, both in form and substance, rejecting this operation as a consequence of those potential negative effects it could have," Cuerpo said in an interview on TVE.

BBVA Chairman Carlos Torres said on Thursday the combined entity would boost the Spanish economy by generating a higher tax base and creating a stronger player in Europe.

"I am confident that the government will appreciate the value of the transaction," Torres said in a call with investors.

Catalonia, the Spanish region that would be most affected by the takeover, will hold regional elections on Sunday.

Unions and some local parties have already expressed concerns about the impact any merger would have in terms of job losses and branch closures in the region.

Carles Puigdemont of separatist party Junts, who is running for president of Catalonia, said the takeover must be stopped.

"For some time now there has been a strategy to liquidate the Catalan banking sector, to the detriment of users and the country," Puigdemont said on X.

Sabadell and CaixaBank, both founded in Catalonia, moved their legal headquarters out of the region in 2017 after a failed attempt led by Puigdemont to separate it from the rest of Spain, fearing the secession drive would leave Catalonia outside the European Union and its protections. (Reporting by Emma Pinedo and Joan Faus; writing by Charlie Devereux; editing by Inti Landauro and Alexander Smith)