Evo Morales on Monday threatened to evict foreign companies unless they sign new contracts within six months giving Bolivia majority control over the entire production chain.
Morales announced during a May Day speech at the San Alberto gas field in southern Bolivia, that the move would be a "true nationalisation" that would help the economy and generate additional jobs in Bolivia.
"The time has come, the awaited day, a historic day in which Bolivia retakes absolute control of our natural resources," he said.
The left-wing president said foreign energy companies would have to agree new contracts with the state run oil firm, Yacimientos Petroliferos Fiscales Bolivianos (YPFB), within 180 days.
He said the state-owned YPFB would now be responsible for all oil and production and sales, as well as prices, in the industry.
Multinational companies that last year produced 100 million cubic feet of natural gas per day in Bolivia will be able to retain only 18% of their production, with the rest being given to YPFB.
Bolivia has South America's second largest natural gas reserves after Venezuela. It has an estimated 54 trillion cubic feet of natural gas reserves, according to official data.
A soldier stands guard at the gas
plant in Carapari, southern Bolivia
Morales had pledged to exert greater state control over the industry when he won the presidency in December in a landslide.
The measure is expected to affect about 20 foreign oil companies, including Spain's Repsol, Petrobras of Brazil, Britain's BP and French group Total.
Morales said the government would begin negotiations immediately with the companies to make sure they are willing to comply, but said they could be stripped of their privilege to operate in Bolivia if they don't sign new contracts within the six-month deadline.