France and Germany have joined forces to block a radical shake-up of Europe's energy market - a move that will prevent some of the region's biggest power companies being broken up.

José Manuel Barroso, European Commission president, has been told that Paris and Berlin will not accept the forced dismantling of groups such as Eon and RWE of Germany, and EdF and GdF of France.

Mr Barroso's team is now preparing a more modest proposal for publication in January to break open Europe's energy market, but insists they are still determined to expose the big national champions to greater competition.

Neelie Kroes, the EU competition commissioner, has argued that the "absolute priority" should be to split up companies that supply energy while owning infrastructure, such as power grids and interconnectors. "There has to be a structural solution that once and for all separates infrastructure from supply and generation: in other words, ownership unbundling," she said in October.

But commission officials say Mr Barroso has concluded that complete "ownership unbundling" of national incumbent suppliers is not politically acceptable in the face of Franco-German opposition, with other countries possibly "hiding" behind them.

One claimed the commission president had been informed of the strong opposition of German chancellor Angela Merkel and French president Jacques Chirac, after the two leaders met this week.

Mr Barroso's allies say Franco-German opposition to full ownership unbundling is not new, adding that the idea is at the "extreme" end of the potential remedies to tackle the lack of energy competition.

Andris Piebalgs, the EU energy commissioner, and Mr Barroso are putting the finishing touches to a proposed new structure designed to create a pan-European energy market.