Circatex bosses received the DTI grant in December 2001

South Shields-based Circatex was given a �3.75m grant to aid a management buy-out when previous owners Viasystems decided to close the plant, which makes printed circuit boards.

But now rival UK firms claim the December 2001 grant breeched European Union competition rules.

If Circatex is forced to pay back the cash, the future of some or all of the South Shields jobs would be in doubt.

Six companies are preparing an official complaint to the European Commission because they say the Department of Trade and Industry (DTI) grant gave Circatex an unfair advantage.

Kelvin Leigh, managing director of Devon-based printed circuit board maker, Eurotech, is one of those planning the European protest.

'Big trouble'

He said: "This is not just my company talking.

"There are a number of UK printed circuit board manufacturers that have felt that this level of grant is completely unfair.

"It creates a playing field which is simply not level."

Unions at the plant expressed worries that the row could threaten jobs at the plant.

A spokesman for the Amicus union said: "That grant helped to secure hundreds of jobs and, if it had to be paid back, that would certainly put those jobs at risk.

"It was entirely right for the government to give that grant and without it the company could be in big trouble."

South Shields MP David Miliband said the DTI grant had been entirely proper and was used to protect skilled jobs.

Compensation package

He said he backed the case for a grant as the constituency MP for South Shields.

He said he was unaware of any internal DTI advice or discussions.

No-one from Circatex was available for comment.

Earlier this year former workers made redundant from Viasystems won a payout of �2.5m.

The DTI agreed to a compensation package, which should see some 800 former workers get about �2,500 each.

Union officials successfully argued that members were not properly consulted about the closure plans.