BRUSSELS (Reuters) - Brussels is taking Britain to Europe's top court over its benefits rules, accusing it of denying thousands of EU citizens living in Britain the right to welfare - a claim London rejects.
The European Commission, the EU executive, said on Thursday that two years of talks had failed to resolve a conflict over Britain's rules that require EU nationals to pass a special test to access a range of benefits including unemployment payments.
The British government, which is trying to cut its budget deficit while addressing public unease about immigration and abuse of its welfare system, says it will continue to enforce a "right to reside" test and pursue further benefit reforms.
Britain signed up to EU rules in 2009 allowing EU nationals living and working there to receive such benefits, while British citizens living abroad can receive benefits in those countries.
The Commission's decision to go to the European Court of Justice will be seized upon by eurosceptics as further evidence that Brussels' reach is overbearing and that Britain should leave the European Union.
Prime Minister David Cameron has promised to hold a referendum on Britain's membership if he wins the next parliamentary election in 2015.
The Commission says the "right to reside" requirement violates EU law since, it argues, you can be living and paying taxes in Britain for years and still fail the test.
"Tens of thousands of EU nationals living legally in the UK have been refused access to benefits to which they are entitled," EU spokesman Jonathan Todd told a news conference.
Official figures showed London refused benefits to 28,400 EU citizens living in Britain between 2009 and 2011, Todd said, out of more than 42,000 who applied.
The Commission says it received complaints from citizens who worked in Britain and paid taxes to the British government but were denied unemployment benefits when they were made redundant.
The ECJ in Luxembourg must now rule on the issue, a lengthy process which could result in large fines for Britain if the court were to find it in breach of the law.
Britain's Conservative-led coalition government said in a statement the right to reside test was "a vital and fair tool".
"We will not only fight this action but press ahead with plans to strengthen Britain's benefits system to ensure it cannot be abused," the government said.
Britain is debating whether to remain part of the 27-nation bloc. Conservative MP and former cabinet minister Peter Lilley told BBC radio the Commission's intervention would be "costly, unwelcome and undemocratic", saying it showed Brussels was trying to "extend its powers".
However, the Commission's monitoring of countries' compliance with EU law has long been a feature of the bloc's powers, and ECJ rulings have favoured Britain in the past.
The EU executive also denied accusations that its decision to go to the court was political or that dropping Britain's special test would lead to so-called benefits tourism.