Tiscali, the Italian broadband operator currently up for sale, is suing BT for “defamation and malicious falsehood” after the telecommunications group wrote to Tiscali’s customers trying to persuade them to switch to BT’s broadband service.

The letters, which have been sent to thousands of customers, referred to the proposed sale of Tiscali's Italian and British businesses, saying: “We can understand why you’re wondering what might happen to your Tiscali Broadband service. And because no one really knows the answer just yet, it could be a good time to look at an alternative service.

“Changing your provider to BT could be the right move if you’re worried about the future of your broadband service.”

The letter was headed: "You can be confident with BT Total Broadband."

Tiscali said in a statement: “Tiscali UK has issued proceedings against British Telecommunications for defamation and malicious falsehood.

“In a letter to us, BT has disputed the claim. The next stage is for us to file a further court document and we will then learn the terms on which BT intends to defend the claim, if at all.”

A BT spokesman said: “We take allegations like this very seriously. We recently approached a number of Tiscali customers, who may have already seen media reports suggesting that Tiscali was up for sale, and pointed out that we offer a great service.

"This is a legitimate and reasonable business tactic designed to help us acquire more customers — comparative marketing is an important aspect of a competitive market.”

Tiscali has 1.7 million broadband customers in the UK, making it the country's fourth biggest provider. BT dominates the broadband market with 4.25 million, followed by Virgin Media.

Bids for Tiscali's UK division are thought to be in the region of at least £550 million.

Mario Rosso, Tiscali's chief executive, is drawing up a shortlist for the sale and bidders are thought to include Vodafone, BSkyB and Virgin Media.

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