German car maker Volkswagen has revived its interest in acquiring loss-making Malaysian state-owned carmaker Proton and has arranged talks with Malaysia''s state-owned investment arm Khazanah Nasional Bhd, which owns a 43-per cent stake in Proton to discuss either joint projects or taking a stake in the company.

In July Khazanah Nasional Bhd and Volkswagen held a second round of talks even as the Malaysian body opened negotiations with General Motors of the US to sell part stake in the loss-making Proton. However, Volkswagen was even then regarded the frontrunner to partner Proton.

Earlier talks with VW collapsed in January 2006, after the extent of state control over Proton proved to be a stumbling block. Under the proposals in July Proton will control the domestic distribution network while Volkswagen will handle international distribution; reports quoted unidentified sources as saying.

It was believed that the Malaysian government was reluctant to relinquish its "golden share" in Proton that gives the state a right to veto any plans for the company it may disagree with.

Volkswagen is keen to form an auto manufacturing alliance in Asia, where it faces increasing competition from regional car manufacturers, while Proton sees a tie-up with VW as a means of accessing new technology and expanding its presence outside Asia.

Proton has already held tie-up talks with both Peugeot in the past.