The Government is facing a showdown with the European Commission over the £6.5 million loan to keep the stricken carmaker in business while administrators seek rescue by Shanghai Automotive Industry Corporation.

The Commission demanded more information about the payment, which was given to MG Rover to pay wages and expenses for a week. Officials said that an e-mail about the cash did not contain enough information to determine whether the money can be classed as “rescue aid”.

The Commission’s inquiries come as unions will today tell the Government that a proper proposal for SAIC cannot be put together by Friday and that more money will be needed to keep the workforce employed.

The Department of Trade and Industry is expected to grant another few weeks’ money, albeit on a weekly basis, while there is a realistic possibility that rescue talks can take place. If SAIC does keep the door open to more negotiations then the £100 million bridging loan that was offered to seal a deal before talks dramatically collapsed last week would be reactivated.

The Times understands that the administrators told the Government that they could not pay wages from the assets of MG Rover because their first duty was to the creditors. However, they also said it would be unhelpful if redundancies started while they they were trying to find buyers for the business or parts of it.

The Commission’s concerns came as MG Sport & Racing, the group’s saloon racing division, was put into administration.

It emerged last night that MG Rover had become the first British business to call on the Government’s new Pension Protection Fund, with an estimated claim of £50 million.

Despite entering administration only six days ago, MG Rover beat other recent high-profile corporate collapses such as Allders, the department store chain, and Courts, the furniture outlet, to the PPF’s doors.

The PPF said that it would take up to 28 days to decide whether the carmaker’s application for assistance was successful.

In December 2003 the MG Rover pension scheme had a £67 million FRS17 deficit. It is estimated that 90 per cent of MG Rover’s 6,000 workers transferred their pensions from the BMW scheme to the new Rover scheme when Rover was sold in 2000.

Yesterday the directors of Phoenix Venture Holdings, MG Rover’s parent, triggered more controversy when they revised down the value of assets with which they pledged to help the car division on Monday.

On Monday they said that they would transfer assets worth £49 million. But yesterday they said the present value of the assets could be only between £10 million and £30 million.

Tony Murphy, national officer with Amicus, the union, said: “I am sceptical about the offer and how much it will actually deliver. It may just be a gesture.”

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