The EU competition watchdog wants the court to impose fines on Germany for every day that it fails to cancel the law, which gives the administration or Land of Lower Saxony the power to block bids even though it is a minority shareholder in VW.
The commission said the German government had failed to abide by a previous ruling by the European Court of Justice in 2007 which found that the law gave "unjustified special rights" to public authorities.
"Since Germany has failed to take all the necessary measures to fully comply with the Court's judgement, the Commission has now decided to bring the case before the Court again," the EU's executive arm said in a statement.
The commission argued that the law discourages investment and is unfair to other European Union nations.
Brussels said it would ask the court to impose a fine of around €31,000 per day from the date of the 2007 ruling until Germany complies with the original judgment.
Once the EU judges issue a second ruling, the commission said it wants the court to impose a fine of €282,725 per day until Germany fully respects EU rules.
A 1960 law on the privatisation of Volkswagen gave German public authorities special powers in the company, with a 20 percent blocking minority going to the north-western region of Lower Saxony, VW's home base.
The historic legislation transformed the company, whose German name means "the people's car" and was founded under the Nazi regime.
After the 2007 court ruling, Germany abolished provisions in the law that gave public authorities representation on the board and a 20 percent voting cap but the commission said Berlin had failed to remove Lower Saxony's
"VW is a private company and as such, tailored treatment for one specific shareholder is not appropriate," said Chantal Hughes, a commission spokeswoman.
Brussels launched negotiations with the German authorities in a bid to reach an amicable agreement but Berlin -- bent on protecting jobs in the region -- put an end to the talks this year.
"The VW law also allows for potentially inappropriate politic interference in business activities. This can deter investors and is not just hypothetical," Hugues said.
She added: "It is an issue of fair and equal treatment with other countries in the European Union."