Spanish oil major Repsol sent a letter to Argentine President Cristina Fernandez formally proclaiming a dispute over Buenos Aires' nationalization of the company's YPF unit, the first step toward invoking international arbitration.

The move means that if the parties don't reach an accord on compensation within six months, Repsol will take the case to the World Bank's International Center for Settlement of Investment Disputes, sources in the Spanish firm told Efe on Tuesday.

Repsol may also pursue legal action in Argentina or the United States, the sources said.

The nationalization reduces Repsol's stake in originally state-owned YPF from 57.4 percent to around 6 percent.

The Argentine federal government is keeping just over half of the controlling 51 percent stake in YPF, with the remainder to be divided among the country's oil-producing provinces.

Argentina's Grupo Petersen still holds a 25.46 percent interest and another 17.09 percent of the shares continue to be traded on the Buenos Aires and New York stock exchanges.

Repsol says the nationalization violates a bilateral treaty on protection of investments.

The Spanish company has valued its stake in YPF at $10.5 billion, although YPF's new administrators have hinted the government will not pay that much and are auditing the firm's finances amid concerns about a lack of investment and fuel shortages.

Repsol has said the recent discovery of massive unconventional shale gas and oil reserves in west-central Argentina was behind the move to seize control of the firm and has denied Buenos Aires' accusations that YPF's dividend policy sapped it of the resources it needed to invest and meet the country's energy needs.

It also has said energy companies in Argentina have been discouraged from investing due to regulated fuel and electricity prices.

The Spanish government has blasted the expropriation move and retaliated by announcing plans to limit imports of Argentine biodiesel.

Madrid said it also will pursue "measures of a diplomatic nature" in various international forums in response to the takeover.