The government has released proposals to increase its powers to intervene in mergers that raise national security concerns, even with smaller companies.
The Department for Business, Energy and Industrial Strategy said the changes were targeted at key areas - specifically companies that design and manufacture military and dual use products and parts of the advanced technology sector.
Currently, the government can only intervene in mergers involving companies with a UK turnover of more than £70m or where a share of UK supply increases to 25 per cent or more. The new plans lower the threshold to businesses with a UK turnover of £1m and remove the second requirement.
"Today's proposals will close these loopholes to enable greater scrutiny of foreign investment in a changing market," Beis said in a statement.
Beis said it was also consulting separately on longer-term proposals to allow for better scrutiny of transactions that may raise national security concerns including espionage or sabotage.
The government would introduce a "call-in" power to allow it to scrutinise a broader range of transactions within a voluntary notification regime and introduce a mandatory notification regime for foreign investment in certain parts of the economy.
Business and energy secretary Greg Clark said:
Britain has and always has had a proud record of being open to the world as the foremost advocate of free trade. It is right that every so often the government reviews its mergers regime to close loopholes where they arise and this is what these proposals do in the area of national security.
No part of the economy is off-limits to foreign investment and the UK will continue to be a vociferous advocate for free trade and a magnet for global talent.
Ross Denton, competition and trade partner at Baker McKenzie EU, said the proposals have the potential to "revolutionise" investment in the UK.
"If the UK government is going to require a mandatory filing for all 'foreign' investment civil nuclear and defence projects, this will cover an enormous swathe of UK business.
"There is also the question of how civil nuclear and defence would be defined, how they overlap with the dual-use sector which appears to be subject to voluntary as opposed to mandatory notification regimes, and what counts as 'foreign' particularly after Brexit."