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However, Porsche said it did not want to take a majority stake in Volkswagen, and therefore would offer only the minimum price required by law.

Porsche boss Wendelin Wiedeking said the move was designed to stop hedge funds dismantling VW, which is Porsche's most important partner.

Volkswagen shares, which soared over the past year, fell 4.8% on the news.

Porsche shares gained more than 3%.

The move would not dilute the Porsche brand, the company's board promised in a statement: "Porsche will remain Porsche."

If a hedge fund dismantled VW and sold that on the stock market, we would lose our most important partner Wendelin Wiedeking, Porsche chief executive

Porsche's move to exercise its option to buy an extra 3.6% in Volkswagen had been rumoured for some time.

Under German law, Porsche has to bid for all of VW when its stake goes above 30%.

The low offer price is likely to ensure that few VW shareholders will take up the offer.

"If a hedge fund dismantled VW and sold that on the stock market, we would lose our most important partner," Mr Wiedeking told Germany's Bild newspaper. "We cannot let that happen, that's why we acted."

Minimum amount

"We do not expect many Volkswagen shareholders to offer us their shares," said Porsche spokesman Michael Baumann on Saturday.

"Which means simply that we intend to go to 31%. We do not by any means intend to take over."

Porsche is the world's most profitable carmaker.

VW is Europe's largest carmaker, and in addition to the VW name, it owns other brands including Audi, Bentley, Skoda and Seat.

The two companies have been sharing their technology for some time, with the four-wheel drive VW Touareg and the Porsche Cayenne being one of the most recent examples.

Volkswagen famous Beetle car is based on an original design by Dr Porsche.

'Volkswagen law'

Porsche's move comes after the European Union (EU) moved against a German law that protected VW from takeovers.

Under the so-called "Volkswagen Law", any shareholder in VW cannot exercise more than 20% of the firm's voting rights, regardless of their level of stock holding.

The European Court of Justice has already indicated that the law probably breaks EU rules, and a full judgement to that effect is expected later this year.