The European Commission has launched an in-depth investigation under the EC Treaty's rules on state aid into a series of funding measures taken by the UK in favour of Royal Mail.
The move follows complaints from Royal Mail's competitors in the newly liberalised UK postal market.
The Commission will be examining the terms of each of the funding measures to determine whether they constitute state subsidies, or whether they meet 'market investor' conditions.
EU Competition Commissioner Neelie Kroes said: "I take the complaints received very seriously. The postal sector is increasingly open to competition, and it is important to reassure competitors that the advantages of that opening are not neutralised by illegal state subsidies. At the same time I want to be clear in that the Commission will also make sure that any necessary financing intended to compensate the provision of the public service is not called into question. We will look at each of the UK's measures carefully to see whether what they have done represents state aid and whether they have a lawful or unlawful purpose."