The gas-rich country's state energy firm YPFB will assume control of PAE's 25-percent stake in the Caipipendi field and the Argentine company will be compensated, Energy Minister Juan Jose Sosa told reporters.

"What's happened is that PAE has not been contributing the (investment) share it was supposed to and for that reason, its stake is being canceled and transferred to YPFB Chaco, a subsidiary of YPFB," Sosa said in his first announcement since starting the job this week.

The decree takes effect immediately, he said. A spokesman at Buenos Aires-based PAE, in which BP holds a 60-percent stake, declined to comment.

Leftist President Evo Morales, who appointed the former YPFB deputy president in a sweeping cabinet shake-up, has tightened state control over Bolivia's natural gas reserves, the region's second largest and a key energy source for Argentina and Brazil.

Months into his first term, Morales shook foreign investors by announcing the nationalization of the energy industry. His reforms have effectively given the state control of the reserves, allowing foreign companies to operate as mere service providers.

The Caipipendi area is located in southern Bolivia and is operated by a consortium that also includes Spain's Repsol and BP. Sosa said they would not be affected by Tuesday's announcement. He said the amount of compensation to be paid to PAE had not yet been determined.

Work is underway to further develop the Caipipendi area, the main source of natural gas sent to Argentina, and Repsol said in a recent statement that production capacity should triple from the current 3 million cubic meters of gas a day to 9 million this year.