Morales ordered the army to take over the Cochabamba headquarters of the power transmission company known as TDE.
Morales said the TDE nationalisation stems from the company's lack of investment in Bolivia.
"In honour of all Bolivian people who have struggled to recuperate our natural resources and basic services, we are nationalising Transportadora de Electricidad (TDE)," Morales said during his official address for May Day, also known as International Workers Day.
"Bolivia still needs partners, but not owners," he said after ordering the army to take over TDE's installations. TV images showed armed soldiers controlling access to and from the company's headquarters.
TDE administers 1,900 kilometres of power lines in Bolivia. Red Electrica indirectly holds 99.9% of the company, which reported net profits of €12.5 million last year, accounting for less than 3% of Red Electrica's 2011 net profits.
Red Electrica officials were not immediately available for comment, but a Spanish government source in Madrid quoted by Reuters said authorities were in touch with La Paz to discuss technical and diplomatic aspects of the nationalisation.
The move came two weeks after Argentina unveiled a plan to take control of the country's No. 1 oil company, YPF, from majority shareholder Repsol, based in Madrid, using similar justification.
Bomb rocks EU Buenos Aires headquarters
As a clear sign of the tensions, a bomb exploded yesterday (1 May) in front of the EU's headquarters in Buenos Aires.
The blast occurred between 02:45 and 03:00 hours (local time) and damaged a garage adjacent to the building, local media announced.
Tensions between Argentina and the EU grew after Brussels threw its weight behind Spain in the expropriation case. Argentina seized Spain's assets, claiming that energy was "a vital resource".
Last Thursday, Argentine Foreign Ministry described the EU's reaction to the expropriation "excessive."
The country is expected on Thursday or Friday to get final legislative approval for the bill allowing the government to take control of YPF.