Regulations forcing car makers to cut average CO2 emissions to 130g/km for its cars, or face fines, has been declared illegal.

It means that negotiations on targets, fines and start dates may have to start from scratch.

EU Parliament’s Legal Affairs Committee, which made the decision earlier this month, said the regulation had not fallen under the correct Article of the EC Treaty.

It has been drafted in Article 95 which prevents market distortions but it should have fallen under Article 175 which deals with environmental laws.

It seems that the EU wanted a single pan-European regulation, so tried to put it through under single market rules in Article 95.

“This isn’t just a technicality; the whole legal basis of the regulation could be challenged,” said Jay Nagley, from Clean Green Cars.

If proposals were re-drafted under Article 175, one country could set tougher CO2 limits than those of another country.

A parliamentary vote is due in October, which will either see the rules introduced by the end of the year or continue the issue into 2009.