The European Union launched legal proceedings on Thursday in response to the British government's attempt to overturn parts of the Brexit withdrawal agreement.

The infringement procedure, which could come before European courts, has not derailed post-Brexit trade talks, but reflects mounting tension in Brussels as time runs short for a deal. "This morning, the Commission has decided to send a letter of formal notice to the UK Government. This is the first step in an infringement procedure," EU chief Ursula von der Leyen said.

"The letter invites the UK Government to send its observations within a month," said von der Leyen, the president of the European Commission.

On Tuesday, British MPs backed a bill to regulate the UK's internal market from January 1, when Britain completes its post-Brexit transition period and leaves the EU single market and customs union.

The proposed text, by London's own admission, overwrites parts of the withdrawal treaty that Prime Minister Boris Johnson signed with EU leaders last year, a breach of international law. Johnson's government has described this bill as a "safety net" in case post-Brexit trade talks fail and the EU tries to impose a customs border between Great Britain and Northern Ireland.

But EU capitals -- including Dublin -- see these provisions as key to preventing a return of a hard border with Ireland and preserving the good relations underpinned by the Good Friday peace deal in Northern Ireland.

"As you know, we had invited our British friends to remove the problematic parts of their draft internal market bill by the end of September," von der Leyen said. "This draft bill is, by its very nature a breach of the obligation of good faith laid down in the withdrawal agreement.

"Moreover, if adopted as is, it will be in full contradiction to the protocol on Ireland and Northern Ireland."

'An administrative step'

The EU said the bill would breach Article 5 of the Withdrawal Agreement, which states that both sides must "cooperate in good faith" to implement the deal.

If Britain does not back down, the infringement procedure could go all the way to the European Court of Justice, which would be able to impose large fines. But the case is a fairly standard EU procedure. Many member states face dozens of legal challenges under EU law and, for example, this is the 94th active action against the UK.

Dutch Prime Minister Mark Rutte told reporters the development was merely "a necessary administrative step".

"We will respond to the letter in due course," a British government spokesman told reporters, playing down the significance of the announcement. "We need to create a legal safety net to protect the integrity of the UK's internal market, ensure ministers can always deliver on their obligations to Northern Ireland and protect the gains from the peace process."

Johnson has pushed on with the legislation -- despite concerns in his own party and a warning from Washington that it puts Irish peace at risk. The legislation is now being debated by the House of Lords. In parallel to the battle over the bill, EU and UK negotiators Michel Barnier and David Frost are meeting in Brussels this week for their final planned round of talks on a post-Brexit trade deal.

Diplomats say these talks will not be torpedoed by the legal action but London's stance has cast a cloud over negotiations ahead of a planned EU summit on October 15. "The discussions are carrying on today and I think they have been conducted in a constructive spirit," a Number 10 spokesman said.

Economic shock

If there is no deal by the end of October, European officials warn it is hard to see how one could be ratified by the end of the year, meaning the UK would leave the single market with no trade agreement.

This would exacerbate what is already expected to be the economic shock of Brexit, with a more severe disruption to cross-Channel trade, renewed tariffs and the prospect of a dispute over fishing rights.

European leaders, meanwhile were arriving in Brussels for a two day summit on foreign policy and the EU budget.

Diplomats said they would not allow Brexit to divert them from their agenda, but that Irish Prime Minister Micheal Martin would lay out Dublin's concerns on Friday.