Owners of the Palace Pier in Brighton are challenging the rival West Pier's right to National Lottery funds for restoration.

The Noble Organisation has instructed lawyers to say the granting of funds could be regarded as unfair competition.

Lottery organisers have to look again at funding for the Brighton West Pier Trust to restore the Grade I listed structure because there is now a new private sector partner involved - St Modwen, which runs Brighton Racecourse.

They are now considering whether the challenge by the Noble Organisation has any validity and have put on hold any signing of an initial grant contract with the trust and St Modwen.

The case has been taken up by Lord Bassam of Brighton who said: "This is a case of a peer backing the West Pier. The Noble Organisation is basing its case on very narrow commercial considerations."

But Noble director, David Beisterfield, said: "We believe it is wrong for a large grant of £15 million to be made for the West Pier when we have a Grade II* listed building which has not received one penny of state aid.

"It is a simple question of fairness. We take exception to the huge distortion of the market that this grant would make. It is unfair competition and we have no option but to protect our interests through legal recourse.

"Our relations with the West Pier Trust remain good and we have no quarrel with it.

"But it is not fair that Lottery money should be given to fund a commercial development which will be in direct competition with us.

"Brighton and Hove Council is also likely to arrange for a great chunk of foreshore to be made available as well."

The Palace Pier, which has now renamed itself Brighton Pier, has benefited from more than £15 million in restoration money since Noble bought it in the Eighties.

Lord Bassam, former leader of Brighton and Hove Council and now a Home Office minister, said: "This is a very worrying development," adding that he would be seeking meetings involving Ministers to sort out the problem.

Dr Geoff Lockwood, chief executive of the West Pier Trust, did not want to comment if there was the possibility of legal action.

But in a leaked letter to MPs and the city council, he said the Noble Organisation had supported restoration with full knowledge of National Lottery funding up to two years ago.

He added: "The people of Brighton and Hove ought to know that the Noble Organisation, acting out of its own commercial interest, is determined to defy the wishes of the people to see a restored West Pier."

A spokeswoman for the Heritage Lottery Trust said: "We have issued a draft contract to the Brighton West Pier Trust which is under discussion at the moment."