Brussels - The European Commission on Wednesday approved Greek government plans for the privatization of Olympic Airlines, but told the carrier that it must pay back 850 million euros (1.2 billion dollars) in illegal state aid from the sale of its assets.

Transport Commissioner Antonio Tajani said an investigation had shown that Greece's ailing flagship carrier had receive financial help from the government since 2005.

"This aid is incompatible with the (European Union) treaty," Tajani said.

At the same time, the commissioner approved plans for a new, smaller carrier, which will be born from the ashes of Olympic and will likely be called Pantheon Airways.

"This decision puts an end to a lengthy dispute between the European Commission and Greece concerning Olympic," Tajani said.

It remained unclear whether Olympic would be able to recover the entire amount that it needs to return to the Greek state from the sale of its assets, which Tajani stressed should take place "at market prices." (dpa)