British low-cost airline easyJet stepped up the challenge to Spanish carrier Iberia on Thursday by naming Madrid as a base for domestic flights and a hub for southern Europe.

EasyJet said it was already the second biggest international carrier to Spain behind Iberia, with 7.5 million passengers last year, and from mid-February 2007 it will operate domestic flights from Madrid's Barajas Airport.

"We applied for domestic slots and we have been granted them. It will be a substantial hub," an easyJet spokesman said.

The airline is taking advantage of increased capacity at Barajas, as the building of Terminal 4 has halved traffic at the old terminals.

"Thirty percent of all flights in Spain are low cost but we believe this figure is sure to rise far more because up to now, a good part of the offering has been tailored towards the tourist and the European passenger," easyJet's head of southern Europe, Arnaldo Munoz, said in a statement. "The Madrid base expects to revolutionize this situation."

Spanish flag carrier Iberia has already unveiled plans to cut back its domestic routes under pressure from airlines such as privately-owned Vueling, Air Europa and SAS-subsidiary Spanair. It has a 20 percent stake in new budget carrier Clickair which is due to start flying in October.

EasyJet, which is recruiting new pilots and cabin crew for the Madrid operation, said it would announce new routes in September. It already flies from Madrid to five airports on the European mainland and four in Britain, and from 11 other Spanish airports.