The FROB fund will receive both state debt and cash, the source said, adding that the operation would boost its capital base to 15 billion euros from 9 billion.

"This has happened because of Bankia's recapitalization," the source said on condition of anonymity.

The FROB on Monday approved an immediate capital injection of 4.5 billion euros into Bankia.

The source also said the move should not impact Spain's liquidity position in a substantial way. The country's cash balance has shrunk in recent months as fiscal revenues fall short of expectations.

Spain is inching towards seeking international aid after requesting a 100-billion-euro European credit line for its battered banks in June. Sources told Reuters last month that negotiations were under way.

(Reporting by Julien Toyer; Editing by Sonya Dowsett, John Stonestreet)

• A Permanent Economic Emergency