LONDON, Jan 31 Reuters French telecom operator Iliad on Wednesday said Vodafone had rejected a sweetened proposal to merge their Italian businesses, and it would fiercely pursue market share as a standalone operator.

Vodafone confirmed the end of talks with Iliad, but it said it was continuing to pursue other options for a deal in Italy.

Its shares fell 3.3.

Iliad said in December it had submitted a proposal to Vodafone to merge the Italian units, a move that would have combined its fastgrowing consumer base with the British company39;s strength in business in a highly competitive market.

Vodafone said at the time it was exploring options with several parties, potentially including a merger or a disposal.

One of them was a potential deal with Swisscom39;s Fastweb Italian unit, sources familiar with the matter said.

A Vodafone spokesperson said on Wednesday We are no longer in talks with Iliad, but our discussions with others continue.

Iliad increased its offer by 100 million euros to 6.6 billion euros in cash, with Vodafone also receiving 2 billion euros of a shareholder loan.

Iliad would have received 400 million euros in cash 100 million euros less than originally proposed and also 2 billion euros of a shareholder loan, it said.

The Iliad Group is confident that the offer presented was the best possible business combination to benefit a struggling Italian market and telecommunications industry, Iliad said.

Reporting by Diana Mandiá in Gdansk and Paul…