Spain's Telefonica SA's (TEF) stake in the Telco holding company that controls Telecom Italia SpA (TI) is a "relevant problem" that needs to be solved and that the Italian government is watching closely, a top government official said Tuesday.

In comments confirmed by his spokesman, Italy's undersecretary for telecommunications, Paolo Romani, also said Telecom Italia's fixed-line network is a strategic asset that must remain in Italian hands.

Telco, Telecom Italia's largest shareholder with a 24.5% stake, is owned by Spanish phone giant Telefonica, Italian banks Intesa Sanpaolo (ISP.MI) and Mediobanca SpA (MB.MI), insurer Assicurazioni Generali (G.MI) and the Benetton family.

Telefonica holds a 10% indirect stake in the Italian phone operator through Telco.

-By Giada Zampano, Dow Jones Newswires; 39 06 69766925; giada.zampano@dowjones.com