ROME (Reuters) -Italy's government is ready to use its special vetting powers if UniCredit's proposed takeover of smaller rival Banco BPM goes against the national interest, the prime minister said on Monday.

UniCredit's bid risks scuppering the government's plans to form a third strong banking player alongside Intesa Sanpaolo and UniCredit through a merger of BPM with state-owned Tuscan lender Monte dei Paschi di Siena (MPS), both of which have ties with Italy's biggest fund manager, Anima Holding.

With a large public debt to refinance, Italy considers it important for those companies investing the country's high amount of private savings to remain in domestic hands.

"We have to be careful that savings are managed by decision-making centres that have their core business in Italy, otherwise if we don't have this the savings don't get invested in Italy," Prime Minister Giorgia Meloni said in a TV interview late on Monday.

UniCredit's bid for BPM is a market transaction, she told Quarta Repubblica TV show.

However, "the government has instruments to intervene should it find that the deal, let's say, is not in the national interest," she added.

UniCredit CEO Andrea Orcel launched a surprise 10 billion euro ($10.5 billion) offer for Banco BPM last month and has also been seeking a tie-up with Commerzbank which could make Germany UniCredit's main market.

UniCredit's bid for BPM is also hampering the latter's attempt to buy Anima as it prevents BPM from raising its offer price. BPM recently bought 5% of MPS and Anima 3% as the government advanced re-privatisation plans.

Italy's wide-ranging "golden powers" legislation allows the government to block or set conditions on foreign and domestic takeovers, as well as governance changes at companies that operate in strategic sectors such as energy, telecoms and banking.

Orcel last week told investors that UniCredit still had no interest in MPS, having refused to take it off the state's hands in 2021, straining relations with Rome.

The government said it will carefully make its assessments when UniCredit formalises the terms of the bid.

($1 = 0.9532 euros)