The Observer reported that Chinese government is preparing to launch an unprecedented legal challenge in a bid to block BHP's planned takeover bid for Rio Tinto.

As per report, high ranking officials from the Chinese embassy in London have approached several law firms over the past month for help in blocking the takeover and Chinese embassies elsewhere in Europe and the US are also believed to have been seeking advice on ways of blocking the takeover.

Mr Mike Pullen of law firm DLA Piper told the newspaper "Rio and BHP may not have any assets in China but the Chinese government would argue that a takeover would affect its domestic market. There's no precedent to such a challenge."

As the world's largest steel producing country, China is concerned that a combined entity would exert control over a third of the world's seaborne exports of iron ore.