The European Commission has been urged to investigate if a secret deal between Thanet council and ferry company Transeuropa that has cost taxpayers £3.3million breached laws on state aid.

The council has been officially reported to the Commission by Cllr Ian Driver (Green).

He said he believes the deal, which allowed Transeuropa to defer port fees while it sought to find new backers, broke strict EU rules restricting state support for companies and businesses.

The council has denied the deal broke laws and insists it did not require authorisation by the Commission.

The council has been left with a £3.3m black hole as a result of Transeuropa going into administration.

A savings plan recently agreed by the Labour-run council means £1m is to be cut from the housing benefit budget to cover part of the shortfall.

Cllr Driver said the deal should have been reported to the Commission at the outset and the company secured an unfair advantage as a result of Thanet's support.

He also says the agreement went on far longer than guidance says any form of state aid should do.

"It is a complicated area, but no one other than the Commission is really in a position to say whether I am right or wrong.

"You can get ten lawyers who will all give you a different opinion - my view is there a clear case for the Commission to at least investigate."

He added: "The council is in meltdown. I would not let it run Toytown let alone Thanet. The electorate has been misled and there are serious issues about the use of public money which have not been properly explained."

Thanet District Council initially refused to answer a series of questions from the KM Group about the claims over state aid, saying they would have to be dealt with instead under Freedom of Information laws.

However, it subsequently issued a brief statement, saying: "The council is satisfied that unlike the giving of grants, soft loans, loan guarantees, interest rate rebates, accelerated depreciation allowances, capital injections and preferential tax and rate reliefs, the re-scheduling of invoiced debt does not constitute state aid.

"As a result, the council did not require the consent of the European Commission to those arrangements."