(BRUSSELS) - The European Commission threatened Germany on Thursday with fresh court action if Berlin did not modify within two months a disputed law shielding Volkswagen from takeover.

"In the absence of a satisfactory reply from Germany within two months ... the commission may decide to refer the matter to the European Court of Justice," it said in a statement.

The law, which dates back to 1960, has been the subject of a long-running spat between Germany and Brussels, which says it violates European Union rules on the free flow of capital.

Last year, the EU's top court ruled against the law, forcing Berlin to come up with a revised version.

Germany said earlier this month that a revised version of the disputed law, approved in the German parliament, complies with demands laid down by the court.

The revised legislation retains a clause allowing the German state of Lower Saxony -- where Volkswagen is based -- to hold a blocking minority in the company with a 20-percent stake.

Shareholders in German companies normally need to own 25 percent of a firm before they can block strategic decisions.

This effective state veto is bitterly opposed by Porsche, the sports car maker which controls 74 percent of Volkswagen, Europe's biggest carmaker.

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