BAA runs the UK's biggest and busiest airports

Ferrovial said it had offered 900 pence for each BAA share, valuing the firm at �9.7bn ($18.2bn) and topping its earlier bid of �8.75bn.

But it was not enough to win over BAA which said it would not be sold "on the cheap". Last week BAA said it thought it was worth at least 940p per share.

BAA runs the London airports Heathrow, Gatwick and Stansted.

Battle for support

Ferrovial said it had decided to make the terms of the deal public after BAA was unwilling to engage in negotiations.

We remain determined that this company... will not be sold to the Ferrovial Consortium or any other bidder on the cheap Marcus Agius, BAA chairman See BAA's share price

The two firms are battling for the support of shareholders and shortly after receiving the initial bid from Ferrovial, BAA said it would return �750m to investors if the takeover failed.

In a statement, Ferrovial said it believed the new offer represented "extremely attractive value" and was therefore "disappointed" that BAA had snubbed the move.

BAA chairman Marcus Agius said he believed that the company had "an exceptional future".

"We remain determined that this company, with its unique assets, will not be sold to the Ferrovial Consortium or any other bidder on the cheap," Mr Agius added.

Industry probe

A takeover has been approved in theory by European competition regulators, but in the UK the Office of Fair Trading (OFT) said last week that it would look into whether the sector is competitive.

The OFT explained that should it find any evidence a takeover would hamper competition, then it would refer the industry to the Competition Commission for a full investigation.

Analysts have speculated that an investigation into sector could lead to BAA facing tougher regulation or even calls for the firm to be broken up.

BAA's airports handle 90% of passengers in the London area and 63% in the UK.

Ferrovial said last week that it would co-operate with any competition probe into the industry if its bid for BAA was successful.