EU chief Ursula von der Leyen declared Thursday that Brussels is taking legal action over the British government's attempt to overturn parts of the Brexit withdrawal agreement.
"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," von der Leyen said.
"The letter invites the UK Government to send its observations within a month."
On Tuesday British lawmakers on Tuesday adopted the bill to regulate the UK's internal market after Brexit.
Despite expressions of disquiet even from some members of the ruling Conservatives, the House of Commons passed the bill by 340 votes to 256.
Senior minister Michael Gove said the bill was "vitally important" to ensure smooth trade among the UK's four constituent nations, dismissing vociferous objections from Scottish pro-independence MPs as "stories to scare children at bedtime".
The government rejected warnings that the bill could imperil peace in Northern Ireland after US President Donald Trump's special envoy, Mick Mulvaney, conceded that it could leave the province's Good Friday Agreement "at risk".
For the main opposition Labour party, business spokesman Ed Miliband said: "When the Trump administration starts expressing concern about your adherence to international agreements and the rule of law, you know you are in trouble."
The legislation now passes to the upper House of Lords, where it faces opposition after the government admitted that key clauses will violate Britain's EU divorce treaty, by unilaterally imposing post-Brexit controls on Northern Ireland.
But it is still expected to become law in the coming weeks.
Prime Minister Boris Johnson's government defused a revolt in the Commons after agreeing that parliament, rather than ministers, will have the final say on triggering the treaty-breaking clauses. But for the EU, any violation is anathema.
Johnson's predecessor as prime minister, Theresa May, and former finance minister Sajid Javid were among Conservative MPs who had spoken out against the bill.
May, who absented herself from the vote, said the bill would "lead to untold damage to the UK's reputation and put its future at risk". But Javid backed the government in the end.