Fernandez said in an address to the country that the measure sent to congress on Monday is aimed at recovering the nation's sovereignty over its hydrocarbon resources.
She said the shares being expropriated will be split between the national and provincial governments.
The president complained that Argentina had a deficit of $3 billion last year as a net importer of gas and petroleum.
Spanish officials had earlier protested the plan, saying Argentina risks becoming "an international pariah" if it takes control of Repsol's YPF subsidiary.
Spanish Foreign Minister Jose Manuel Garcia-Margallo last week summoned Argentine Ambassador Carlo Antonio Bettini to convey concern over possible nationalization of YPF, which represents 42 percent of Repsol's total reserves, estimated at 2.1 billion barrels of crude.
"This president is not going to answer any threat, is not going to respond to any sharp remark, is not going to echo the disrespectful or insolent things said," Fernandez said to applause from business, union and political leaders at an official event announcing the proposed law. "I am a head of state and not a hoodlum."
"We are the only county in Latin America, and I would say in practically the entire world, that doesn't manage its own natural resources," Fernandez said. She said her proposal "is not a model of statism" but "the recovery of sovereignty."
But some analysts cautioned against the move.
"It is a bad decision," said Emilio Apud, a former Argentine energy secretary who now works as a consultant. "It gives the Argentine government a bad image" and will discourage investment, he said. Abud also called the proposed law "a bad way to treat friendly governments like Spain."
Joe Amador, Latin America director for Scotia Waterous, the oil and gas arm of Scotiabank, in Houston, Texas, said the big question is where the money will come from, and he said the move is likely to make investors skittish.
"The issue that scares investors is not knowing how far the governmental participation will go, if it's only YPF or if it is going to include other petroleum companies in Argentina," he added.
YPF is Argentina's biggest company, and Spain is Argentina's largest foreign investor, with the United States in second place.
Governors of oil-producing Argentine provinces have withdrawn about 15 oil leases, representing 18 percent of YPF's crude production, alleging the company failed to keep its promises to develop them. YPF has countered that it has invested millions in those areas and plans to increase production, but Argentine officials have said that still falls short.
How Argentina may try to displace Repsol, which owns slightly more than 57 percent of YPF, has been the subject of wide speculation since the government's pressure campaign began in February. The president's proposal would leave Repsol with just a little more than 6 percent of YPF's shares.
YPF officials did not immediately comment on Fernandez's proposed bill.
Fernandez put Federal Planning Minister Julio de Vido and Economics Vice Minister Axel Kicillof in charge of handling the expropriation.
Even with its share prices depressed, YPF is valued at $13.6 billion, and buying half of that would deplete Argentina's treasury of funds it needs to maintain the populist subsidies that have kept the country's economy afloat.
The president's proposal declares that the exploration and exploitation of hydrocarbons is "of national public interest" and declares that building up the nation's supply is a priority.
Argentina this year expects to import more than $10 billion worth of gas and natural liquid gas in the face of an energy crisis, according to estimates from the hydrocarbon sector.
