Analysts have welcomed the move by UniCredit, particularly because a tie-up between the two banks might spur more M&A activity in Europe's banking sector.

UniCredit was able to buy 4.5% of Commerzbank from the German state because the government trusts the Italian bank, its CEO said in a newspaper interview, ruling out any "aggressive" moves such as an unsolicited buyout bid.

The government said it won’t offload any additional shares in the bank following the sale to UniCredit for €702 million. The move marks an U-turn for the government.

UniCredit SpA has demonstrated at its existing German unit that it can cut costs in the country, which bodes well for its potential plans for Commerzbank AG, analysts at KBW wrote in a note.

A German bank staff union on Thursday called on Berlin to prevent UniCredit from buying Commerzbank , warning of massive job losses if the deal goes through.

Opposition within the German government to a potential takeover of Commerzbank by UniCredit is solidifying, amid anger at the way the Italian bank acquired its 9 per cent stake and concern over potential macroeconomic risks a merger might pose to the German economy.

UniCredit's investment in German rival Commerzbank is consistent with an "excellent" geographic diversification strategy, the chief executive of Italy's top lender Intesa Sanpaolo said on Wednesday, adding that his bank had a different approach.