European regulators moved quickly yesterday to open an in-depth investigation into the government’s multi-billion pound survival plan for Northern Rock.

The inquiry, which will run for several months, will establish whether the special support complies with the European Union’s strict rules on state aid and does not give the bank an unfair competitive advantage over its rivals.

Neelie Kroes, the EU Competition Commissioner, stated that the investigation was necessary “notably in view of the large scale of the aid measures, the background of current conditions in financial markets and the risks of distortion of competition”.

The formal examination became inevitable after the government presented the initial two-page outline of its rescue plan on March 17. But rarely has the Commission moved so fast, announcing the initiative within just nine working days. Failure to have done so would have exposed Northern Rock to possible lengthy legal challenges from competitors complaining the bank was receiving preferential treatment.

The Treasury underlined the need to ensure the package is fireproof when it welcomed the investigation, stating that “a rigorous, transparent and open process is important to ensure legal certainty around the Commission’s final decision”.

The statement acknowledged that the government support for Northern Rock, which was designed to protect taxpayers and consumers and maintain financial stability, had to be consistent with state aid rules and avoid any unfair distortion of competition.

But the inquiry – the largest state aid case EU anti-trust regulators have ever handled – may have wider consequences. It could serve as a benchmark for other governments which may be forced to temporarily prop up banks, notably in Germany, damaged by the financial turmoil.

“It underlines the importance of having clarity on what measures can and cannot be taken to help banks in difficulty and will give guidance to others on how things should be handled,” Jonathan Todd, a Commission spokesman explained.

The Commission’s multinational investigation team, which will report to the head of its Competition Department, Philip Lowe, and ultimately to Mrs Kroes, has already asked the government for more specific information and will remain in close contact with the Treasury in the months ahead.

British sources, however, suggested yesterday that many of the issues had already been addressed in the more complete, nine-page business plan the Treasury presented on Monday. This provided further detail on the size of the bank’s balance sheet, data on its mortgage and savings books and the competition charter which will determine how it operates in the market place.

The inquiry will also give Northern Rock’s competitors an opportunity to present their views to the EU investigators. Mr Todd confirmed that some had already done so, but declined to identify them.

Danish banks have complained to the Commission about the rescue plan, but their protests may be more muted now that Northern Rock aims to close its savings banks in Denmark.

To be given a clean bill of health by the Commission, the rescue package must demonstrate it will restore the bank to long-term viability, involve the minimum aid necessary for the restructuring operation and not unduly distort competition.

In early December, the Commission gave the government a green light to provide emergency aid provided this lasted only six months. The temporary rescue line ended on 17 March. The more comprehensive restructuring package the Commission is now investigating, commits the bank to shrinking in size.

Under the plan, which relies on government assistance until at least 2011, Northern Rock will cut its staff by one third and reduce its home loans. At the same time, it aims to repay the £ 24 billion loan from the Bank of England, while the UK government guarantees on its funding operations in the deposit and wholesale markets will be gradually phased out.

The Commission has already approved government restructuring aid for two German and one Austrian bank in the past four years. But the amounts involved, ranging from € 360 million to € 9.7 billion were considerably lower than those at stake in the present operation.

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