MADRID (Reuters) - The Spanish government will approve a takeover bid by Italian motorway operator Atlantia (>> Atlantia) for Spanish rival Abertis (>> Abertis Infraestructuras) at the weekly cabinet meeting on Friday, a source at the public works ministry said.

Atlantia is competing against Hochtief (>> Hochtief), the German arm of Spanish builder ACS (>> ACS Actividades de Construccion y Servicios), in a takeover battle for Abertis.

Hochtief submitted in October the highest bid, valuing Abertis at around 17.1 billion euros ($21.3 billion), though Atlantia said on Jan. 19 it would call a shareholders meeting to vote on a change to its own offer.

Spain's stock market regulator (CNMV) approved Atlantia's bid in October though is yet to clear the offer made by Hochtief. The government has already given Hochtief's bid the green light.

Through the takeover, Atlantia, controlled by the Benetton family, plans to create the world's biggest toll road operator with a combined market value of more than 40 billion euros, though the offer has met with political hostility from Madrid.

After the CNMV cleared Atlantia's offer, the Spanish government asked the regulator to revoke the approval because the Italian group had not sought government permission to acquire Abertis' satellite business, considered a strategic asset.

(Reporting by Robert Hetz; Writing by Paul Day; Editing by Tomas Cobos and Mark Potter)