The Scottish Government could be summoned to appear before the European Court of Justice in a move which also threatens the break-up of the country's biggest social landlord.

After two years of investigations, the European Commission has now issued a "letter of formal notice" to the government stating that contracts awarded to dozens of tenant-led housing organisations in Glasgow to manage their properties appear to have breached public procurement laws - despite the previous executive passing legislation in 2005 to prevent this.

The government has two months to respond, after which the EC may issue a legal "reasoned opinion" followed by an appearance at the Court of Justice.

Any breach could put the issue of the sale of thousands of Glasgow Housing Association homes to smaller, localised bodies in jeopardy, although some believe the threat may add urgency to the government's efforts to get to grips with the GHA break-up.

The move comes as the government confirms it is considering a new report which claims GHA could benefit by up to £500m if it sells its stock to local housing associations and downsizes.

GHA insists devolution to smaller associations, known as second stage transfer, must be financially neutral with some claiming it could cost £500m.

Scotland's housing regulator is now considering the report, by consultants Mazars and receiving cross-party support from Glasgow's MSPs, and an assessment will be published by the end of the month.

The EC's actions follow the decision in 2005 to hand over much of the control for the day-to-day running of housing to community-based associations.

At the time, GHA warned European rules were potentially being breached but were accused by many of concocting an excuse to take services back in-house.