LONDON - A tussle between Britain and the European Union over where thousands of shares would be traded in the event of a no-deal Brexit escalated on Wednesday after Britain's financial watchdog accused its EU counterpart of risking disruption by restricting market access.

The European Securities and Markets Authority (ESMA) said it would partially relax proposals to limit trading outside the bloc in a policy update but Britain's Financial Conduct Authority (FCA) said the changes did not go far enough.

ESMA stunned exchanges in March when it said that if Britain leaves the EU without a deal, 6,200 mostly EU-listed shares, but also 14 UK stocks, could only be traded on platforms inside the bloc.

The European watchdog said on Wednesday it would slightly soften the scope of the rules to enable EU banks and investment firms to trade all UK shares in Britain, including the 14 blue chip stocks including BP and Vodafone.

However it did not relent on the trading of shares issued by firms incorporated in the EU.

The FCA said the changes still risked disruption and would limit companies' ability to access major investors and their freedom to choose where to list on public stock markets.

London is Europe's biggest share trading center and is used by fund managers from across the continent, who would be forced to accept less attractive prices if market access from Britain is restricted.

The FCA said it was committed to open markets, but had not yet decided whether to recpirocate by restricting trading of shares in Britain.

The regulator said it would set out its approach "if it is clear there will be a no-deal exit".

It said it would consult with ESMA and other market participants on ways to minimise disruption.

An ESMA spokesman said the regulator had engaged "extensively" with the FCA but this had not progressed.

Commenting on the FCA holding off making a decision on market access, the spokesman added: "This may be very late and we prefer to inform market participants on time to support preparations."

(Reporting by Iain Withers, editing by Sinead Cruise and Angus MacSwan) ((; +44(0)207 542 3330;))