* Says stake gives Ryanair influence over rival
* Final decision due in July
* Ryanair says decision 'bizarre and manifestly wrong'
DUBLIN, May 30 (Reuters) - Britain's Competition Commission said it may force Ryanair to sell its entire stake in Aer Lingus after a probe found the holding allows the low-cost giant to influence strategy at its smaller Irish rival.
Ryanair's chief executive Michael O'Leary said the decision was "bizarre and manifestly wrong" and that the competition commission would be in breach of European Union law if it ruled while an EU court was considering the same question.
In a preliminary ruling, the competition commission said the 29.8 percent shareholding could obstruct Aer Lingus' ability to merge with another airline, raise capital or sell its valuable slots at London's Heathrow Airport.
"Whilst not giving it control over the day-to-day running of its rival, Ryanair's minority shareholding can influence the major strategic decisions that could be crucial to Aer Lingus's future as a competitive airline," Competition Commission Deputy Chairman Simon Polito said in a statement.
The ruling listed three options, including the sale of Ryanair's full stake, which would be worth around 240 million euros ($311 million) at Aer Lingus' current market value.
A partial sell-off or a series of "behavioural remedies" - such as commitments about how Ryanair would vote at future shareholder meetings or restrictions on its ability to increase its stake - might also be considered, it said.
Interested parties will be given an opportunity to respond to the provisional ruling before a final decision in July.
Ryanair said the UK probe should be halted while it appeals a decision by EU antitrust regulators in February to block its attempt to buy Aer Lingus, as EU law gives the competition commission a duty of "sincere cooperation" with the EU.
Ryanair will likely be able to delay any sale by a number of years by pursuing the matter in UK and EU courts, said Donal O'Neill, an analyst with Goodbody Stockbrokers.
Ryanair built up its stake in Aer Lingus as a platform to take over its Irish rival, saying it could cut its cost base and improve its profitability.
Aer Lingus has said the fact that Ryanair is maintaining the stake after three failed takeover bids proves it wants to influence its main rival on the lucrative Irish market.
Shares in Aer Lingus, which welcomed the decision, climbed 1.3 percent to 1.54 euros after the announcement. Ryanair shares were flat at 6.9 euros.