Shougang Corp's plan to buy a 19.7 percent stake in Australian iron ore producer Mt Gibson Iron Ltd from Russian billionaire Alisher Usmanov was blocked by a regulator because of Shougang's links to an existing holder.

Shougang Concord International Enterprises Co, a unit of China's ninth largest steelmaker, is associated with existing Mt Gibson shareholder APAC Resources Ltd, the Melbourne-based Takeovers Panel said yesterday in a statement.

The rejection, supported by Mt Gibson, foils Shougang's attempt to increase control of iron ore supply as prices for steel raw material soar. Chinese mills agreed last month to pay at least 65 percent more for ore this year.

"This certainly creates a difficult situation," said John Veldhuizen, an analyst at BBY Ltd. "These companies are becoming more active in this space."

A takeover bid "is a real possibility", he added.

Perth-based Mt Gibson has a market value of A$2.3 billion ($2.1 billion).

"We have no plans to appeal the decision though we do not agree with such a decision," said Cheng Man Ching, Hong Kong-based company secretary of Shougang Concord.

Usmanov's Gazmetall Holding (Cyprus) Ltd agreed in January to sell Shougang a 9.3 percent stake in Mt Gibson for A$201 million ($183 million) and an option over a 10 percent stake.

The panel found the sell-off would increase Shougang's and APAC's voting power in Mt Gibson to 39 percent given APAC already holds a 20.2 percent stake in the company. Shougang Corp, through Shougang Holding (Hong Kong) Ltd, also owns 18 percent of APAC Resources Ltd.