The way now looks clear for an Arcelor-Mittal merger

The offer had originally been backed by Arcelor's board, as a means of warding off an earlier bid from European rival Mittal Steel.

But under pressure from shareholders the board changed its mind, and earlier in June recommended the $32bn (�18.5bn; 25bn euros) Mittal bid instead.

Severstal has threatened to sue over the collapse of its agreement.

'Unwind agreement'

The deal that the Russian firm's owner, Alexei Mordashov, had reached with Arcelor would have seen him take a significant personal stake in the merged firm.

Investors controlling 57.94% of Arcelor capital voted to reject a tie-up with Severstal.

Until very recently Severstal had been floated by Arcelor as a "white knight" to ward off the attentions of Mittal Steel.

Arcelor president Joseph Kinsch said investors owning 60.4% of the firm's shares were represented at the shareholder meeting.

"Seeing this vote, the board will now unwind the agreement with Mr Mordashov," Mr Kinsch said.

Arcelor is now recommending acceptance of a share and cash deal from Mittal Steel which would create a market-leading group with 320,000 workers.