A United Arab Emirates (UAE) incorporated firm, trading as e&, owns 14.6% of Vodafone, which the Cabinet Office has said would "enable it materially to influence the policy of Vodafone".

This gives rise to "a risk to national security" in Vodafone's work as a government contractor, including to departments that support national security, and in ensuring UK cyber security, said a decision by the Cabinet Office's secretary of state, Oliver Dowden.

Fears that foreign powers could meddle in key British businesses have led the UK government to strengthen its scrutiny of corporate transactions involving state-owned buyers and companies from authoritarian countries.

The government has cleared e&'s 14.6% stake in Vodafone but new restrictions will be imposed.

Vodafone and e& must establish a "national security committee", the decision said, to oversee sensitive work performed by Vodafone that impacts on UK national security.

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There are requirements too on the Vodafone executive board membership and functions, though they were not listed in the decision.

The government must be notified of any variation of the agreement between e& and Vodafone, it said.

Such measures are said to mitigate the risk to national security.

In response, Vodafone said: "We are pleased to have received clearance in our home market for our strategic relationship agreement with e&, and for e& to take a seat on our board."

"This is the next phase in a strategic relationship that began in May 2022, when e& made its original investment in Vodafone."

The group chief executive officer of e& will join the Vodafone board as a non-executive director, a Vodafone statement read.

"The strategic relationship also enables collaboration across a broad range of growth areas, as e& and Vodafone can benefit from each other's respective operational scale and complementary geographic footprint," it added.

Three did not respond to a request for comment on the implications for the Three merger.

If approved by regulators, the proposed combination of Three and Vodafone would create the country's biggest mobile phone operator.

The new combined group, which will comprise only Three and Vodafone's respective UK operations, will be 51% owned by Vodafone and have 27 million mobile customers.