ROME (Reuters) - Italy intends to use its right to intervene on UniCredit's bid for Banco BPM in a reasonable manner, Economy Minister Giancarlo Giorgetti said on Wednesday, appearing to rule out a hardline approach to the deal.

So-called "golden powers" allow Italy's government to block or set conditions on foreign and domestic corporate takeovers in strategic sectors such as energy, telecoms and banking.

However, Giorgetti stressed that the government could impose prescriptions or an outright veto only when a threat of serious harm to the essential interests of the state was evident.

"Veto will only be used as a last resort," the minister said, addressing lawmakers during a Q&A session.

UniCredit Chief Executive Andrea Orcel in late November swooped on BPM, which has long been a natural takeover target for the bigger bank given its roots in Italy's wealthy Lombardy region, where UniCredit wants to boost its market share.

The move derailed a government push to combine BPM with state-backed Monte dei Paschi di Siena (MPS) to create a competitor to industry leaders UniCredit and Intesa Sanpaolo. MPS has since launched an offer for merchant bank Mediobanca with the backing of the Italian government.

Giorgetti said both UniCredit and MPS had notified the government about their takeover plans.

Italy will now assess whether the proposed deals will impact savings collection and asset allocation activities as well as the smooth functioning of payment systems, the minister added.

Reuters first reported in December that the government had little room to intervene over UniCredit through golden powers, despite Rome's displeasure at Orcel's moves.

European Union bank regulators back mergers, and EU treaties promote the free movement of capital across member countries.

Designed at the European level to fend off unwanted non-EU buyers, golden powers were expanded during the COVID-19 pandemic to shield key companies when valuations crashed.

Some countries, including Italy, have applied the legislation to the banking sector.

EU authorities are currently reviewing the framework for the screening of foreign direct investment to propose more uniform rules.

The government said this month it was open to changing its "golden power" legislation so as to cut red tape weighing on businesses.