Germany's largest airline Lufthansa has criticised plans by Etihad Airways to invest in ailing Italian carrier Alitalia and called on the European Commission to block the deal, saying it would amount to unfair competition.

Etihad, which has bought stakes in airlines across the world including Air Berlin, Aer Lingus and Virgin Australia, said on Sunday it was in the final stages of a process that could see it invest in Alitalia.

Lufthansa has fiercely lobbied against state-owned Gulf airlines such as Etihad, Emirates, and Qatar Airways, and their fast-paced expansion in Europe, saying they benefit from unfair state aid and thus distort the market.

"We reject recurrent subsidies and the partial renationalisation of European airlines, whether by European states or by states or state-owned companies from outside the European Union," the German airline said on Monday.

Alitalia is seeking a partner to help keep it flying and a government-backed plan to raise emergency cash already came under fire from International Airlines Group, the owner of British Airways and Iberia, in October.

The Italian airline also said on Monday it was about to finalise loan agreements with banks for up to 200 million euros ($270 million) pledged last year as part of the government-brokered rescue.

Lufthansa added that Europe's policy makers should stop burdening the region's own airlines with measures such as emissions trading, passenger taxes and night flight bans and focus on ensuring a fair global framework.

"We are doing our bit by undergoing painful cost-cutting measures, but we need fair competition," said the airline, in the midst of a restructuring programme to cut costs and boost profits.

The European Commission, which is already looking at whether an investment by the state-owned Italian postal service in Alitalia contravenes its state aid rules, did not immediately respond to requests for comment. - Reuters