The approval by Parliament's upper house, which represents Germany's 16 state governments, came on Friday after the lower house gave its blessing last month.

The new law allows expropriation as a last resort if voluntary efforts to secure shares fail. It gives the Government until June 30 to expropriate shareholders if it chooses to do so.

The Government moved a week ago to take an initial 8.7 per cent stake in Hypo Real Estate, with its financial-sector rescue fund buying new shares in the Munich-based commercial property lender for 60million euros ($A112.7million).

The bank said then that it was ''a prerequisite for the intended recapitalisation of Hypo Real Estate'' that the Government ''gain full control''.

Hypo Real Estate, or HRE, has become the most prominent German victim of the financial crisis. It ran into trouble in September after its Dublin-based unit Depfa Bank failed to find short-term funding amid the widening credit crunch.

Since then, the Government has shored it up with loan guarantees covering about $163.4billion. Officials have argued the Government needs to be able to exert direct control after intervening repeatedly with guarantees.

US private equity firms JC Flowers & Co and Grove International Partners and their shareholders currently own 21.7 per cent of Hypo Real Estate, a spokesman for the companies, Peter Dietlmaier, said.

The legislation still has to be signed by President Horst Koehler, usually a formality.

Hypo Real Estate's shares were up 2.4 per cent at 1.30 euros after Friday's decision. AP