KT&G has managed to thwart the approach of Icahn and his allies

Mr Icahn is part of a group that tabled a $10bn (�5.7bn) bid for KT&G, but wanted the company to sell off assets.

The plan did not find favour with the board, so Mr Icahn's group pushed for changes to three of its 12 seats.

A court ruled that Mr Icahn and his allies, who own 6.7% of KT&G, could contest only two of the board's seats.

KT&G will hold its shareholders' meeting on Friday, a company spokesman said after the ruling.

Better plans?

Calling themselves the KT&G Full Value Committee, the group of disgruntled investors led by Mr Icahn and Warren Lichtenstein, a hostile takeover specialist, argue the firm is not doing enough to help shareholders.

As result, they want the company to take steps to bolster the share price.

The move by the dissident group has grabbed headlines in South Korea, especially after Franklin Mutual Advisers, KT&G's biggest shareholder, said last week that it would back Mr Icahn and his allies.

KT&G has been fighting the takeover approach, saying that while the sale of assets would be a short-term boost to the share price, it would do little to safeguard the long-term future of the firm.

Mr Icahn may now have to raise his offer for KT&G if he wants to gain control of the company, analysts said.

The initial offer valued KT&G shares at $61 each, though speculation has said that the price may rise above $71.