E.ON's chief says the deal should boost its UK gas supplies

The group has agreed to buy the privately-held firm for 690m euros (�470m; $837m) including debt.

E.ON has been trying to diversify its mainly-Russian gas sources.

It has also been trying to improve UK supplies which should be helped by the purchase of Caledonia, as the firm has interests in 15 North Sea gas fields.

"The acquisition of Caledonia brings us significantly closer to our goal of covering up to 15-20% of the gas needs of E.ON Ruhrgas from our own production in the long run," chief executive Wulf Bernotat said in a statement.

Supply boost

E.ON added that Caledonia had reserves of about 14 billion cubic metres which could be harvested over the next decade - the equivalent to the annual gas consumption of about nine million households.

Caledonia is controlled by a group of investors led by energy-focused private equity firm First Reserve.

However, the German firm still needs to win approval from UK watchdogs for the deal.

E.ON has been building up a significant presence in the UK market in recent years - buying Powergen for 15bn euros in 2002 and Midlands Electricity for 1.6bn euros in 2003.

The group is also pursuing Scottish Power, the UK's fifth biggest utility company.