The French government rejected General Electric's current bid for Alstom's energy assets on Monday, but opened the door for a deal that would also combine the two companies' rail businesses.
Alstom said last week it was reviewing a binding $16.9 billion bid from the U.S. conglomerate for its energy arm, although it has not turned down a rival offer from Germany's Siemens.
"In its current form, we unfortunately cannot give backing to the proposals that you have made based solely on the purchase of Alstom's energy activities," French Industry Minister Arnaud Montebourg wrote in a letter to GE Chief Executive Jeff Immelt.
Montebourg said that the government was concerned that Alstom's rail transport business, which makes 26 percent of the company's revenues, would be isolated if it were hived off.
"That's why it would be highly desirable to ensure a clear global future for Alstom Transport by selling General Electric's transport activities to it," he added.
Montebourg, who has clashed in the past with foreign industrial titans over their French investment plans, said the GE activities in question included its freight train and signaling businesses, with revenues of $3.9 billion.
In reaction to his letter, GE said in a statement: "We believe our proposal is good for France, for Alstom and for GE." It added: "We are open to continuing dialogue."
Immelt said last week in a French TV interview that the offer was only the start of the process and that there would be opportunities to adapt it.
Though much smaller than Alstom's power plant turbine and grid business, its rail arm has a higher profile in France as the maker of most of the elegant TGV trains that have travelled the country at high speed for decades.
Siemens has emerged as a possible white knight after the German group said last week it would make a formal offer for Alstom, most likely in the form of a swap of power and rail assets.
While Paris would be keen to see a new Franco-German industrial champion, analysts say that overlaps between Siemens and Alstom means job losses at Alstom would be hard to avoid.
—By Reuters