The future of a controversial waste incinerator is in doubt after the European Commission intervened.

A complaint from Lewes MP Norman Baker about funding of the £145 million waste burner, being built at Newhaven harbour, has cast doubt over the legality of the project.

East Sussex County Council and Brighton and Hove City Council will now have to prove to Brussels that the contract governing the funding is fair.

If they cannot, they will face sanctions which could delay or derail the scheme.

Mr Baker, who has led a campaign against the incinerator, said: "The fight to stop the Newhaven incinerator is not over yet. This is a huge spanner in the works."

Mr Baker and the Lib Dem MEP for the South East, Sharon Bowles, complained to Brussels after the councils extended a contract with Veolia for five years without inviting rival bids.

The councils originally signed a £1.3 billion deal in 2003 for the company to dispose of the area's waste for 25 years.

The contract involved Veolia building the Newhaven incinerator, three multi-million pound waste transfer stations, the £10 million materials recovery facility in Hollingdean, Brighton, a composting plant and two recycling centres.

The £35 million five-year extension was agreed last year after the cost of the incinerator doubled to £145 million.

Mr Baker argued that the deal breached competition law because it was not publicly tendered.

He said: "Households in East Sussex are facing a bill of over £600 each for the hated incinerator.

"As a basic minimum the Conservative administration should have put the contract extension out to tender to get value for money."

In his response to the complaint, EC commissioner Loizos Loizou said the contract did not appear to be lawful.

He has written to the Government to request action.

Mr Baker said: "It is quite possible the councils will have to go back and put the five-year extension out to tender, or the whole contract may have to be dropped."

He said that if the contract did have to be tendered again it would have to be under different terms because of tightening of regulations around private finance initiatives such as the one used to fund the incinerator.

In a joint statement East Sussex County Council and Brighton and Hove City Council said: "We took legal opinion at the time, which advised that it was a reasonable course of action not to go out to tender.

"There has not been an EU ruling to respond to but, through the UK Government, we are assisting in responding to the request for information."

A Veolia spokeswoman said: "We await the outcome of the EU ruling. We will be continuing our construction programme for muchneeded waste management facilities in East Sussex."