Industry ministers agreed to a British-backed package of measures to help achieve a level playing field among manufacturers in the single market. The regulation is likely to come into effect next year.
The European Commission already has powers to approve or reject state industrial aid. It can set conditions requiring a company to restructure to ensure fairness in the 15 EU states.
The regulation, adopted yesterday in Brussels, gives the Commission more power to recover unlawful aid and monitor conditions attached to the multi- billion pound grants made available legally each year.
In some circumstances EU officials will be allowed to visit companies suspected of breaching the rules, inspect records and interrogate staff.
In Germany the recovery of illegal state aid can take up to eight years because of cumbersome legal procedures.
Volkswagen is among German companies known to have received unlawful financial assistance. British textile manufacturers have also lost out to Belgian firms known to have benefited from subsidies which did not match EU criteria.
Lord Simon, Minister for Trade and Competitiveness in Europe, said: "Too many governments flout the rules on how these subsidies can be paid. These new powers should help to clamp down on the worst abuses and excesses. The UK has set an example by being one of the lowest subsidisers in the EU."Reuse content