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Ottakar's said the latest offer was "materially" below its current share price but declined to comment further.

HMV's move came after watchdogs gave it the go-ahead to make a new offer for Ottakar's on Friday as it would not "substantially lessen" competition.

Analysts had widely expected HMV to launch a fresh offer after its �97m bid lapsed during the competition probe.

On Friday the Competition Commission ruled the increased presence of supermarkets and online retailers in the market meant a deal with HMV, which also owns the book chain Waterstone's, would have little effect on the market.

Missed chance?

The original offer had valued Ottakar's at 440p a share, but market traders put the latest bid at around the 360p per share mark, which would make the new offer worth just under �80m.

"The board of Ottakar's has informed HMV that it is not prepared to recommend the indicative offer," the company said in a statement.

It added that talks between the two sides were ongoing, but there could be no guarantee that a deal would be reached on any offer.

News of the takeover approach pushed Ottakar's shares lower as some investors took the view that the group had missed out on a higher offer from HMV.

By the close, Ottakar's shares were 25p, or 7.6% lower at 303p while HMV dipped 0.75p to 170.25p.

Since the original offer lapsed, conditions in the book trade have worsened.

In March, Ottakar's reported a pre-tax loss of �4.6m ($8m) in 2005, compared with a profit of �6.9m in 2004.

HMV itself has been the target of a takeover bid recently, and Waterstone's former own Tim Waterstone also launched an abortive bid to repurchase his chain of bookstores.