BERLIN - Germany's government agreed on Wednesday to tighten rules to protect domestic firms from unwanted takeovers by investors from non-European Union countries, two government sources said.

The move comes at a time when Europe's biggest economy, and the EU as a whole, is reconsidering relations with China in the face of increased investment in critical sectors by Chinese state-owned enterprises.

In future, transactions which have implications for German security should be provisionally put on hold pending a final decision.

In a first step, the law will be changed so that a review of a potential deal can be undertaken if there is "likely harm" to the public system or security. Previously, an "actual danger" was needed. The security of EU partners should also be considered.

The economy ministry plans a second step requiring investors in artificial intelligence, robotics, semi-conductors, biotechnology and quantum technology to make public any purchases of 10% or more and allow Germany to screen them.

Previously, only investments in areas such as energy, water, telecommunications and defence could be screened.

German officials have described the Chinese takeover in 2016 of Bavarian robotics firm Kuka as a wake-up call that underlined the need to shield strategic parts of the economy.

An attempt by China's State Grid in 2018 to buy a stake in power grid operator 50Hertz also focused German minds. After Berlin failed to find an alternative private investor in Europe, German state-owned bank KfW stepped in to keep the Chinese out.

(Reporting by Christian Kraemer and Andreas Rinke Writing by Madeline Chambers Editing by Paul Carrel) ((Madeline.Chambers@thomsonreuters.com; +493028885230; Reuters Messaging: ann.chambers.reuters.com@reuters.net))