London - The British government was Thursday reported to be in talks with Barclays after the bank admitted that raising extra capital from the government could trigger a clause that would deliver control of the bank to its Middle East investors.

Barclays and HSBC are the two major British banks which have so far refused to join a massive recapitalization scheme offered by the government of Prime Minister Gordon Brown last October.

The prospect that Barclays, Britain's fourth-biggest lender, could be surrendered to Middle Eastern control has alarmed officials, newspaper reports said.

Shares of the bank have plunged dramatically on the London Stock market this week, falling to 67 pence.

Last October, Sheikh Mansour Bin Zayed Al Nahyan, a member of the Abu Dhabi royal family, and two Qatari investment vehicles invested 7.3 billion pounds (10 billion dollars) in the British bank.

Under the deal, the investors have to wait seven months for delivery of the shares, which convert at 153 pence. But if at any time until the end of June, 2009, Barclays raises more capital at a lower price, the investors are able to take their stake at that lower level.

Given the current position of Barclays shares, the bank would have to roughly triple the number of shares issued to the Middle Eastern investors, a move that would hand them effective control of the bank with a stake of 55 per cent.

Britain's Financial Services Authority (FSA) regulatory watchdog had asked for a "full explanation" of the deal, the Daily Telegraph said. (dpa)