Ken Loach's new film explores the foundation of the Irish Free State

Set during the Irish Civil War, it will compete with Pedro Almodovar's Volver and Sofia Coppola's Marie-Antoinette for the festival's top honour.

US director Richard Linklater is also in contention for his film adaptation of non-fiction book Fast Food Nation.

Last year's Palme d'Or was won by Belgian drama L'Enfant.

It is the eighth time Loach has been nominated for Cannes' most coveted prize.

The veteran British director has never won the honour but has been given other awards, including a lifetime achievement prize in 2004.

Loach has been up for the Palme d'Or seven times before

British film-maker Andrea Arnold - who won an Oscar for her 2005 short film Wasp - is also shortlisted with her first feature, Red Road.

The UK Film Council has expressed delight that the films - both supported through its National Lottery-financed New Cinema Fund - are in contention.

Paul Trijbits, head of the New Cinema Fund, said it proved "British film talent continues to produce films which excite the most prestigious film festival in the world".

Creative Industries Minister James Purnell said it showed lottery money was making an "absolutely essential contribution" to the British film industry.

Also in the running this year is Il Caimano (The Cayman), a satirical portrait of Italian prime minister Silvio Berlusconi from director Nanni Moretti.

The Italian film-maker won the Palme d'Or in 2001 with The Son's Room.

Penelope Cruz stars in Pedro Almodovar's latest film Volver

There are four French films in this year's line-up, including the latest movies from Nicole Garcia and Bruno Dumont.

Donnie Darko director Richard Kelly is nominated for his new film Southland Tales, while new films by Finland's Aki Kaurismaki and Mexican directors Guillermo Del Toro and Alejandro Gonzalez Inarritu also make the cut.

United 93, a recreation of the final hours of one of the planes hijacked on 11 September 2001, will be shown out of competition, as will blockbuster sequel X-Men 3: The Last Stand.

Tom Hanks, Bruce Willis, Hugh Jackman and Kirsten Dunst are among the stars expected at this year's event.