Finnish power company Fennovoima said on Monday it had dropped a bid by French group Areva to build a high-power nuclear reactor in favour of a proposal by Toshiba, but added that the project could be downsized.

"The direct negotiations with Toshiba will commence immediately," Fennovoima said in a statement.

However, it also said the high-power, 1,600 megawatt reactor to be built in Pyhaejoki in the northwest of the country could be replaced with a mid-sized reactor due to changes in its ownership structure.

In October, Fennovoima's largest shareholder EON said it would sell its 34 percent stake in the consortium.

"The reason for launching the assessment concerning mid-sized reactor options is changes in Fennovoima's ownership structure," the Finnish group said.

"The current owners' need for Fennovoima's electricity has not changed and the owners want to ensure the realisation of the project," it added.

The company said it had studied bids by Areva and Toshiba for a high-power reactor for just over a year, but gave no reason for dropping the French bid.

However, Areva would still be in the running if it decided to build a smaller reactor, it said.

"Fennovoima regards mid-sized reactors from Toshiba as well as from Areva and Rosatom as potentially suitable alternatives," it said.

Finland currently has four nuclear reactors at two sites with a fifth, Areva's third generation European Pressurised Reactor (EPR), being built at power company TVO's Olkiluoto site in western Finland.

But construction at Olkiluoto has been marred by delays, with TVO saying earlier this month that the reactor initially supposed to begin producing electricity in 2009 may not be ready until 2016.

Fennovoima said a decision on the Pyhaejoki reactor would be taken by the end of March.

It would solely be "based on the offers", the group said, adding that its choice would not be affected by events at Olkiluoto.