The Irish government says it won't sell its 25 percent stake in Aer Lingus to Ryanair, because a merged airline would be likely to undermine competition and jobs at the former state carrier.
Tuesday's announcement following a weekly Cabinet meeting makes it harder for Dublin-based Ryanair, the biggest budget airline in Europe, to acquire its main Irish competitor.
Ryanair is Aer Lingus' biggest shareholder with a 30 percent stake. This year it launched its third hostile takeover bid since 2006, offering €1.30 ($1.72) per share, a hefty premium over Aer Lingus' market value.
Irish Transport Minister Leo Varadkar says the Ryanair offer "does not satisfy our concerns about connectivity, competitiveness or employment for Ireland."
The government spoke after European markets closed. Earlier, Aer Lingus shares rose 2 percent to €1.08.