"Economic activity is free," Takayuki Kobayashi said in an interview when asked whether officials would intervene in any foreign bid for Toshiba. "In cases when there are security concerns, we respond appropriately in accordance with Japanese laws and regulations."

Foreign private equity firms are vying for control of Toshiba in what will be a test of Japan's willingness to allow one of its established corporations to fall under foreign ownership.

At the same time, Japan is increasing oversight of sensitive technologies as tensions grow with neighbouring China.

Japan wants to attract overseas investment, Kobayashi said, citing a speech Prime Minister Fumio Kishida made this month to bankers and investors in London, when he set out a plan to grow the world's third-largest economy by attracting private-sector investment and redistributing wealth.

Toshiba, whose businesses include nuclear energy, military radar, infrastructure and semiconductors, on May 13 said it had received interest from 10 investors for a potential buyout. It did not name them, although U.S. private equity firms Bain, Blackstone and KKR are among those considering bids, sources have said.

Toshiba, which has been rocked by accounting scandals and a governance crisis, has established a committee to look at deals that could take it into private hands as well as other options. Shareholders earlier rejected a management-backed restructuring plan.

A shareholder-commissioned investigation published a year ago said Toshiba's managers colluded with Japan's Ministry of Economy Trade (METI) and Industry to block the influence of foreign stockholders. METI minister, Koichi Hagiuda declined to order an investigation of that allegation.

(Reporting by Tim Kelly and Kaori Kaneko; editing by Barbara Lewis)

By Tim Kelly and Kaori Kaneko