UPDATE 2-TCI fights on for larger stake in Japan's J-Power

(Adds comments from TCI director)

By Junko Fujita and Alison Tudor

TOKYO, April 25 (Reuters) - British activist fund TCI rejected on Friday a Japanese government recommendation that it not to increase its stake in J-Power (9513.T: Quote, Profile, Research, Stock Buzz), setting the stage for a battle over the power wholesaler.

Last week, Japan rejected a request from the Children's Investment Fund (TCI), J-Power's largest shareholder, to allow it to boost its stake to as much as 20 percent from a current 9.9 percent, citing security concerns and a view power supplies could be disrupted. [ID:nT246457]

"The recommendation has done Japan a major disservice," said John Ho, a TCI director, during a press conference in Tokyo.

TCI said the reasons given by Japan not to double its stake in the company were based on "false premises", overlooking the fact that disrupting J-Power's stable supply of electricity is directly contrary to TCI's self-interest because it would harm the value of TCI's investment.

It did not say how it would fight the government over J-Power but has said previously it could challenge the government stance in court.

TCI said Japanese government officials were concerned that the fund's short-term outlook could run counter to the public's best interest when planning investments in Japan's power network and a nuclear power plant being built by J-Power, whose full name is Electric Power Development Co.

Shares in the power wholesaler rose 2.6 percent to 3,900 yen as of 0141 GMT, taking its gains since the government rejected TCI's request to more than 8 percent.