The Commission blocked MyTravel's bid for First Choice in 1999 on competition grounds, but its decision was condemned as wrong by a European Union court last year.

In documents filed at the same court earlier this week, MyTravel asked for a damages award against the Commission of �518m - the amount it claims to have lost as a result of the failed acquisition.

The case marks the first time that a company has attempted to win compensation from the European Commission in relation to a blocked takeover.

The Commission said it was confident MyTravel's case would fail.

"The Commission believes that it is not liable for the alleged damages and that the court will conclude that the action must be rejected," a spokeswoman said.

MyTravel, based in Greater Manchester, is struggling in the face of a protracted travel sector downturn triggered by the war in Iraq and the Sars outbreak.

It clinched a life-saving financing agreement earlier this month with its banks.