Superfast broadband pioneers Virgin Media and BT have taken legal action against Birmingham city council's plans to use public money to introduce a competing network.
The city has been awarded £10m from the government's super-connected cities fund, set up by chancellor George Osborne, which aims to improve speed and connectivity in the major urban areas.
Local officials had planned to spend the money on laying fibre optic cable throughout the region, but Virgin and BT say this will overlap their existing 100mbps+ networks and is hence a waste of public money.
A Virgin Media spokesperson said: "We believe it involves a significant overbuild with our network.
"It's a poor implementation of what is otherwise a sensible policy. It sets a bad precedent and sends a really bad signal to our investors."
The company insisted that it was giving the government-sponsored initiative its support, but only in areas where super-fast speeds don't already exist.
The spokesman added: "We fully support the Urban Broadband Fund and government ambitions to bring superfast broadband to areas not currently served by existing fibre networks. So it's disappointing that Birmingham City Council has put forward a scheme which is not in the interests of local people and we believe, as a result, the European Commission has made a decision based on inaccurate and misleading information which could waste public money."
BT has also confirmed that it is taking action against the scheme, given the green light by a European Commission, which the council has claimed could create up to 1,000 jobs in the region.
James McKay, a member of the council, said: "Birmingham is extremely disappointed in the decision to appeal this landmark ruling. The city has worked in a very positive and collaborative way with [the companies] over the last few years to help inform and develop our business case and we are surprised that they have now chosen to appeal at such a late stage."
The tech-friendly coalition government has made the roll-out of superfast broadband one of its highest priorities and wants Britain to have the best network in Europe by 2015.