The UK government has defended its �650m bailout of struggling nuclear power firm British Energy, following speculation that it could be successfully challenged in court.

The UK government said it was confident the British Energy lifeline would be cleared by European Commission trade watchdogs.

The statement followed a report on Sunday in which Competition Commissioner Mario Monti was quoted as saying that the aid package was technically illegal because the government had granted it without first notifying Brussels.

The newspaper said Mr Monti's remarks could boost an attempt by environmental lobby group Greenpeace to have the British Energy bailout blocked in the High Court.

Some of the British Energy's competitors could launch similar legal challenges.

Withdrawing British Energy's cash lifeline would probably force the firm, Britain's biggest nuclear power generator, into insolvency.

Extra debt

But the bailout could still get the green light from the European Commission even though it is technically in breach of the rules.

A commission spokesman stressed over the weekend that the institution was still assessing whether the aid package complied with EU rules restricting state aid to industry.

The UK government said it was confident the British Energy bailout would be cleared.

"We believe it's totally in compliance with European Union competition guidelines," a spokesman for the Department of Trade and Industry told BBC News Online.

The fresh row over the British Energy bailout came as the company's shareholders met to vote on a proposal to raise its borrowing limit from �1.1bn to �1.6bn.

The company warned that it might have to cease trading if the proposal was not approved.

A British Energy spokesman said raising the borrowing limit was a precautionary measure designed to ensure that the company would have enough cash to fund its operations.