"If the current situation is formalised, the European Commission has to start a procedure for non-respect of a court ruling on this matter," spokesman Oliver Drewes told journalists in Brussels.
Germany's cabinet on Tuesday backed a new law that would protect public influence over the biggest European car maker, Volkswagen, despite strong opposition from the European Commission.
Last year the European Union's top court ruled against a law giving the state of Lower Saxony the ability to block company decisions with 20 percent of the company's shares. Normally a blocking minority is only accorded to those owning more than 25
The European Commission brought the case against the Volkswagen law before the court on concerns that it restricts the free flow of capital in Europe, which is enshrined in the EU's governing treaties.
"There is not room for wiggle," Drewes said. "Basically what the commission would expect is that the court ruling is fully respected and implemented."
"We will now have to clearly see what the final German law is going to look like," he added. "If it's going to look the way it seems to be then there is no other way than to go to the court again."
In its original form, the law was drawn up in 1960 as VW was being privatised to protect it against hostile takeovers by foreign companies. It also ensures that workers have significant say on strategic decision-making.
Porsche, which plans to raise its stake in VW from the current 31 percent to over 50 percent and to bring both companies under the umbrella of one holding company, also opposes the law.