The European Commission has launched an official probe into the proposed plan to build a nuclear power plant at Hinkley on the grounds it could breach competition rules.
The deal, between French energy giant EDF and the British government, is estimated to be receiving as much as a £17bn ($27.8bn, €20.2bn) public subsidy.
The commission noted that the UK has employed a mechanism explicitly aimed at attracting investment in nuclear energy. It is a complex measure of an unprecedented nature and scale, it said.
"The Commission therefore needs to investigate thoroughly its impact on the UK and the EU internal energy markets, and is requesting all interested parties to submit their observations," said Joaquín Almunia, vice-president of the European Commission (EC) in charge of competition policy in an official statement.
Under EU law and competition rules, member states are able to determine their energy mix but when tax payer money is used to support companies, the EC must ensure it is within EU state aid rules which aim to protect competition in the single market.
EDF caused controversy with the revelation that an electricity price of £92.50 ($149.60, €109.34) per megawatt per hour will be fully indexed to inflation through the Consumer Price Index.
The contract will price electricity at £89.50 per megawatt per hour if a second nuclear plant at Sizewell goes ahead. It will last for 35 years from the date of commissioning.
The project will be financed by a group of companies, including the China General Nuclear Corporation (30-40%), EDF (45-50%) and Areva (10%).
If the deal, which is worth £16bn ($26.2bn, €19.3bn) goes ahead, it will see the first new nuclear reactors built in Britain for a generation.
Edward Davey, the energy secretary, welcomed the probe by the EC and said he would give the investigation his full co-operation in an official statement.
"I have no doubt that we will be able to provide robust responses to any lines of inquiry which the Commission sets out as part of its Opening Decision on Hinkley."