Environmental lobby group Greenpeace has threatened to take legal action against the government's bailout of struggling nuclear power firm British Energy.

Greenpeace claims that British Energy's £410m ($638.3m) lifeline was given without the approval of the European Commission, in "flagrant breach" of European Union rules restricting state subsidies for failing companies.

The organisation said it may challenge the British Energy bailout in the High Court if the government does not agree to withdraw it.

"They are artificially distorting the market for power by propping up the bankrupt nuclear industry," said Greenpeace clean energy campaigner Emma Gibson.

Nuclear exit

Greenpeace called on the government to close down British Energy's nuclear reactors and concentrate on developing non-polluting energy sources instead.

But the government rejected Greenpeace's claims, saying it had informed the Commission of the British Energy bailout as required under EU rules.

"The point is that we notified [the Commission] straight away, and were within Commission guidelines," a spokesman for the department of trade and industry said.

The bailout package consists of a temporary loan facility worth up to £410m which is due to expire on 27 September.

Mario Monti, the EU Commissioner with responsibility for competition issues, last week confirmed that the British government had asked the Commission to approve the bailout.

The institution has yet to come to a final decision.

Cash crunch

British Energy, which provides one-fifth of the UK's power, has been hit by lower electricity prices since the wholesale power market was freed up last year.

Other power firms have been able to offset the weak wholesale market by maintaining higher retail prices, but this strategy is not available to British Energy, which does not have a retail arm.

The firm, which was privatised just six years ago, is thought to need about £300m this year to pay off debts and cover losses.