The Spanish government has given the green light to Saudi Arabia's largest telecoms operator, STC Group, to raise its stake in Telefonica beyond 5% and reach 9.97%, Economy Minister Carlos Cuerpo said on Thursday.

Cuerpo confirmed an earlier report by El Pais newspaper during a news conference following the cabinet's weekly meeting in which the stake increase was approved.

"Measures and conditions have been set and accepted voluntarily by the Saudi company to ensure that (the operation) takes place," Cuerpo told reporters.

He said the government's decision followed an "exhaustive analysis based not only on compliance with current legislation but also to guarantee the national interest in defence and ensure the strategic element in telecommunications".

The minister did not provide any details on the specific conditions imposed by the government.

Last year, STC said it aimed to build up an interest of 9.9% in the Spanish telecoms company worth around 2.4 billion euros ($2.53 billion) and become a major shareholder.

The Saudi group said at the time it owned a 4.9% stake in Telefonica and financial instruments giving it another 5% in what it called economic exposure to the company.

The Spanish government had to authorise the deal as Telefonica is considered a defence service provider and therefore a strategic company.

Top government officials opposed STC's move at the time and the government eventually decided to acquire its own 10% stake in Telefonica through state holding company SEPI.

In parallel, Spanish holding company Criteria, which controls Caixbank - the country's largest lender by domestic assets - also raised its stake to 9.99%.

The Saudi company has said it does not intend to gain control of or a majority stake in Telefonica.

($1 = 0.9477 euros)

(Reporting by Inti Landauro and Emma Pinedo; Editing by David Latona and Tomasz Janowski)