The European Union's executive arm approved a €4.5 billion package of Spanish state aid and a €19 billion guarantee from Madrid for troubled Bankia.

"The European Commission has temporarily approved a conversion of existing state-owned preference shares of €4.465 billion into equity and a liquidity guarantee amounting to €19 billion in favour of the Spanish BFA group and its subsidiary Bankia," a statement said.

"Spain has committed to provide a restructuring plan for BFA and Bankia within six months. The approved aid does not include announced capital injections sought by BFA and which are currently under assessment by the Spanish authorities," it added.

In May, Bankia revised its 2011 results from a net profit of €309m to a loss of nearly €3 billion and asked the state for a bailout of €19 billion, the largest in Spanish history.

This would come on top of the €4.5 billion in state loans that the government converted into equity in Bankia's parent company BFA earlier last month as part of the state takeover aimed at saving the lender from insolvency.

Euro zone finance ministers this month decided to make a loan of up to €100 billion available to the Spanish government to prop up banks laden with bad loans following the collapse of a property bubble.