BT and Virgin Media have both confirmed they are taking steps to try and stop Birmingham City Council (BCC) funding its own rollout of broadband services in the city.
The council is hoping to use funds from the £10m secured from the government as part of the super connected cities programme to team up with a provider to deliver services of 100Mbit/s and above to businesses in the city.
The plan was given European Commission (EC) approval earlier this year.
This has frustrated Virgin and BT who see it as unnecessary competition from the public sector when they are both looking to rollout their own networks offering high-speed services.
A spokesperson for BT confirmed to V3 it has applied to have the EC's decision annulled.
"This is an unusual step for us to take but we believe the decision was substantially flawed," they said.
"It would have discouraged commercial investment in high speed networks at precisely the time when such investment is required. It would also have set a dangerous precedent."
Virgin, meanwhile, said that while it supports any plans to bring fibre networks to areas not currently served with superfast services, it believes the plans from BCC are unnecessary and should not have been approved.
"It's disappointing that Birmingham City Council has put forward a scheme which is not in the interests of local people and we believe, as a result, the EC has made a decision based on inaccurate and misleading information which could waste public money," a company representative said.
However, the council hit back, calling their position "extremely disappointed".
It said the challenge threatened the creation of around 1,000 new jobs and was a necessary development to help small firms in the city access affordable broadband services.
"The city has worked in a very positive and collaborative way with them over the last few years to help inform and develop our business case and we are surprised that they have now chosen to appeal at such a late stage," said councillor James McKay.
"We have proven that it is an imperfect market and have presented to the EC a case that the majority of SMEs in Digbeth, Eastside and The Jewellery Quarter areas cannot receive affordable high speed broadband."
The furore is an embarrassing spat for the internet infrastructure community which is charged with ensuring the UK keeps pace with global rivals for broadband speeds and to ensure services of 25Mbit/s and above are available for 90 percent of the population by 2015.
The legal issues come as the government begins the push to have its new Growth and Infrastructure Bill adopted by parliament to reduce the redtape around broadband rollouts.
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