China Three Gorges, which is EDP's largest shareholder with a 23 percent stake, announced a takeover bid for the rest of the company on May 11, offering a premium of five percent which was widely seen by analysts as too low.

The market regulator CMVM said on Wednesday that China Three Gorges is allowed to drop a 50 percent plus one share clause in the takeover rules as long as its bid process runs to its legal conclusion.

This effectively allows China Three Gorges to raise its stake in EDP even if it does not hold 50 percent, plus one share of the company.

This means China Three Gorges could quickly raise its stake to one third of EDP, the level needed to block any potential rival bidders.

There has been speculation that a number of other utilities, including Spain's Gas Natural and France's Engie have been looking at EDP.

China's state-owned international investment company CNIC holds a five percent stake in EDP, meaning that the Chinese state holds a combined 28 percent stake in the utility.

EDP's shares traded sharply higher immediately after the bid, on the expectation of competing bids or an improved offer from CTG.

Its shares were 0.17 percent higher at 3.456 euros on Wednesday, compared with CTG's offer price of 3.26 euros a share.

(Reporting By Sergio Goncalves, writing by Axel Bugge. Editing by Jane Merriman)