LIVERPOOL, England (Reuters) - Britain's business secretary attacked unfettered capitalism yesterday and unveiled plans to review the way companies are governed and how takeovers work, angering business leaders.

In extracts released ahead of a speech to his Liberal Democrat party's conference, Vince Cable said: "Capitalism takes no prisoners and kills competition where it can.

"Markets are often irrational or rigged. So I am shining a harsh light into the murky world of corporate behaviour," he added.

The Lib Dems are junior partners in a Conservative-led coalition government which took office in May and are struggling to assert their own, more centre-left profile.

Cable, a former economist known for speaking his mind, has criticised lavish bank bonuses but broadened his attack in comments which risk alienating parts of the pro-business Conservative party.

Banks are already facing a separate inquiry into their structure.

The review announced by Cable will start in October and examine the economic impact of takeovers, shareholder responsibility, corporate incentives and pay. It could see the government given greater powers to block deals.

Critics have said February's $18 billion takeover of British chocolate maker Cadbury by US food group Kraft was driven by investors seeking a quick return.

"We would like to have rules that stop very damaging behaviour, and (Kraft) was a classic example where short term speculative activity is causing real economic damage," Cable told BBC Radio 4.

However, large cross-border mergers are subject to European Union competition rules, and member states' powers to block them are strictly limited.

The review will examine whether the way in which directors are paid unduly encourages takeover activity, Cable's officials said. It will also consider ways of making shareholders more engaged in a company's future.

Cable's tone raised concern in the business world. The Confederation of British Industry, the main employers' group, accused the minister of using "emotional" language.

"The case for corporate takeovers is that they allow control of poorly run businesses to pass into more efficient hands," said CBI director-general Richard Lambert.

"Mr Cable has harsh things to say about the capitalist system: it will be interesting to hear his ideas for an alternative."

In a round of media interviews yesterday, Cable denied his comments would put off potential investors in Britain.

"The message is clear. It's a pro-business, pro-market minister, that's me, and a pro-business, pro-market government, but we also need to protect the interests of consumers, small business and the small shareholder," he told Sky television.