By David Jones and Brad Dorfman

LONDON/CHICAGO (Reuters) - Kraft Foods <KFT.N> made its formal $16.1 billion offer to Cadbury <CBRY.L> shareholders, triggering a two-month takeover fight for the chocolate maker and a frosty response from Britain.

As the battle got under way in earnest, a source close to Cadbury said Kraft's offer remained "derisory", and UK business secretary Peter Mandelson warned the U.S. food giant it would face a backlash if it tried to buy Cadbury on the cheap.

"If you think that you can come here and make a fast buck you will find that you face huge opposition from the local population ... and from the British government," he was quoted as saying in a report on the Financial Times website.

A spokesman for Mandelson could not immediately confirm the comments.

The offer also starts the clock ticking for potential rival bidders, such as U.S. chocolate company Hershey Co <HSY.N>, to make a counter offer.

Kraft's formal bid matches its original indicative bid of 300 pence in cash and 0.2589 new Kraft shares for each Cadbury share, which the U.S. food company said valued Cadbury shares at 713 pence based on the Kraft closing price on December 1. The deal was valued at 716.6p on Friday due to changes in Kraft's share price and the pound-dollar exchange.

Cadbury shares closed down 0.6 percent, while Kraft's shares ended up 0.6 percent at $26.57 on Friday.

Analysts expect Kraft to have to pay 800p or above to win over Cadbury shareholders, in view of the UK company's upbeat third-quarter trading and the chance of a rival bidder.

"To ward off other rival bidders and to appease Cadbury shareholders, they are most likely going to improve the offer, whether it means improving the price or the cash level of the offer," said Morningstar analyst Erin Swanson.

METHODICAL APPROACH

But others acknowledge the slow, methodical approach to the bidding process that Kraft Chief Executive Irene Rosenfeld has taken, prompted by a determination not to overpay and her view that a rival bidder is unlikely to emerge.

Kraft again said on Friday that it would "remain financially disciplined" in its pursuit of Cadbury and repeated that the deal must add to earnings by the second year after completion, allowing Kraft to maintain its investment-grade credit rating and its dividend.

Cadbury declined to comment on the formal bid, but a source close to the company said: "The offer is unchanged and still derisory."

Under U.S. takeover rules, Cadbury cannot respond to Kraft's formal posting until it publishes its full defense document, which is due in the next 14 days.