Bank seizure

The measure, seen as a last resort to stabilize the German financial market, marks the first time in postwar Germany that bank shareholders face possible expropriation.

The approval, which follows similar action by the lower house 11 days ago, comes after the government took an 8.7 percent stake in the shaky lender as a first step in gaining full control.

The German government has given the Munich-based bank 87 billion euros ($117 billion) in state guarantees since it got into difficulties in October 2008. The financial sector provided a further 15 billion euros.

Nationalization deemed necessary

Hypo Real Estate chalked up a loss of 5.5 billion euros in 2008, the biggest of any German firm. Experts have said that the bank will collapse without government intervention.

The law will expire by the end of June, meaning a takeover would have to be initiated before then.

In return for the funds it has put into the bank, the German government wants to take full control in order to ensure that shareholders cannot block restructuring measures.

Such a move has been opposed by US investor Christopher Flowers, who owns nearly 24 percent of the bank and feels a government stake of 75 percent plus one share would be sufficient.

Flowers has lost 1 billion euros since he paid 22.5 euros per share for his stake at the start of the global financial crisis. On Friday, Hypo Real Estate's shares stood at 1.31 euros.

Hypo Real Estate's main business includes lending money to municipalities to build highways, schools and other infrastructure projects.