(Reuters) - France's controversial decree widening its control over takeovers in strategic industries is meant to help discussions over alliances and is not there to block deals, Economy Minister Arnaud Montebourg told lawmakers on Tuesday.

The surprise decree adopted by the government last week gives it the power to veto takeovers in more "strategic" sectors, in a potential roadblock to U.S. conglomerate General Electric's (GE.N) $16.9 billion bid for French engineering group Alstom's (ALSO.PA) power business.

"This is not a decree for blockage, this is a decree for negotiations. This is a decree for alliances, this is a decree against carving up (French businesses)," Montebourg said. "Yes to alliances, no to tearing up (businesses)."

The takeover decree drew swift criticism from France's employers group and the European Union official in charge of competition, who warned against the risk of protectionism.

But the government, which has said France "is not for sale," is favoring an alliance between the companies rather than a straight sale of Alstom's power arm that would leave the French group with just its smaller transport business.

The government has also pushed for a European tie-up between Alstom and German rival Siemens (SIEGn.DE) as an alternative to GE's bid.

Montebourg, who along with Alstom chief executive Patrick Kron will be questioned by lawmakers at length over the issue later in the day, pressed that point on Tuesday, stressing that French carmaker PSA Peugeot's (PEUP.PA) tie-up with China's Dongfeng (0489.HK) was a model.

Describing the Peugeot-Dongfeng deal, which he recalled saw the state take a bigger stake in the French group, he said: "It's a balanced deal, this is what we want for Alstom, this alliance can happen."

The government has declined to comment on a Reuters report at the weekend which said Siemens was working on a formal asset-swap offer which, according to one source, could see the state take a stake of over 10 percent in Alstom.

France currently owns 0.9 percent of Alstom's capital via state fund CDC.

(Reporting by Ingrid Melander; Editing by Andrew Callus)