Spain retaliated against Argentina on Friday for seizing control of Spanish-owned energy company YPF with a measure that could curtail multimillion-dollar imports of biodiesel from the Latin American nation.

The Spanish industry ministry will approve a biodiesel plan later on Friday, Deputy Prime Minister Soraya Saenz de Santamaria said after a weekly cabinet meeting.

She gave no details, but one possibility would be a measure giving preference to European Union-produced biofuel in meeting compulsory motor fuel blending requirements. Spain's biodiesel industry has lobbied for years for such a rule.

Industry sources estimate that Spain imported 720,000 tonnes of biofuel from Argentina in 2011, worth some 750 million euros $990.6 million (614.1 million pounds). Spanish biofuel plants are running at an estimated 14 percent of capacity.

The goal is to encourage the use of biodiesel of EU origin, an industry ministry source said.

In all, 74 percent of biodiesel used in Spain is imported, and 90 percent of that comes from Argentina and Indonesia.

Spain has threatened consequences for Argentina since it decided to expropriate 51 percent of YPF from Madrid-listed Repsol . But tough action is difficult against a country that has been shut out of world debt markets and has ignored international fines in previous disputes.

Argentine President Cristina Fernandez said on Friday that her country could use more biodiesel itself if Spain cuts imports.

We are in a position to absorb that production, Fernandez said, adding that her government would not complain to the World Trade Organization if Spain reduced its purchases.

Spain bought two-thirds of Argentina's biodiesel exports between January and March of this year, according to the private Argentine Biofuels Chamber (Carbio).

The exclusion of Argentina would have direct, negative effects on production and sales, said Gustavo Idigoras, an Argentine biofuels analyst. The country would have to make a bigger effort if it lost the Spanish market.

Argentina is the world's leading supplier of soyoil and soy-based biodiesel. More than 12 million tonnes of Argentine soybeans were used last year to make biodiesel, compared with total output of some 49 million tonnes in the 2010/11 season.

Argentina's decision to seize control of YPF has angered key trade partners who were already losing patience with protectionist measures by Latin America's No. 3 economy.

Karel De Gucht, the European Union's trade commissioner, wrote to Argentina to express the bloc's serious concerns about the overall business and investment climate in Argentina, singling out the YPF takeover and import curbs for criticism.

You are certainly aware of the very serious legal considerations these measures raised from a World Trade Organization perspective, he said in an April 19 letter distributed by the EU at a G20 meeting in Washington, DC.

The EU keeps open all possible options to address this matter, the letter read.

Earlier, the European Parliament urged the Commission to consider reprisals such as the suspension of trade benefits, mirroring a recent decision by Washington.

U.S. President Barack Obama decided last month to suspend Argentina from the U.S. Generalized System of Preferences (GSP) program, which waives import duties on thousands of goods from developing countries, after it failed to pay compensation awards in two disputes involving American investors.

Argentina has said it will not pay Repsol the full amount the Spanish company wants for its stake in YPF, which has been under intense pressure from Fernandez's centre-left government to increase production.

Repsol has said YPF is worth $18 billion as a whole and that it would seek compensation on that basis. According to Reuters data, YPF's market capitalization as of Friday was $7.3 billion.

One member of the European Parliament, conservative Martin Callahan from Britain, called on EU foreign ministers to launch a joint initiative to expel Argentina from the G20.

Hard-hitting words from the EU are only playing to President (Fernandez's) nationalist agenda, bolstering her position against the West, Callahan said in a letter to EU High Representative Catherine Ashton on Friday.

Argentine Economy Minister Hernan Lorenzino told reporters in Washington: This issue has not been and is not being discussed at the G20.

(Additional reporting by Tracy Rucinski in Madrid, David Sheppard in New York, Krista Hughes in Washington and Maximiliano Rizzi and Maximilian Heath in Buenos Aires; Writing by Tracy Rucinski; Editing by Bernard Orr, Toni Reinhold and Tim Dobbyn)