Ms Pascoe said last night: “I made the state aid complaint because the city council has given them preferential treatment so that no one else gets a look in. It seems not quite right to me.”

An EC ruling against the city authorities could have ramifications not only for the Edge Lane scheme but also for HMRI.

Last night director of legal and estates at the NWDA Steven Zdolyny said: “The Agency is aware of the state aid challenge and we are working with partners to co-ordinate a response to the EC.”

The response is due to be submitted in two weeks time.

Some 370 homes on Edge Lane and surrounding streets must be demolished for the scheme to proceed.

Almost 90% of the properties are either already in public ownership or are in the process of acquisition.

Cllr Baldock said: “There are currently streets and streets of empty houses. There is no point in anyone continuing to try to keep the community together when it has been scattered.”

In September the council, English Partnerships (now the Homes and Communities Agency) and the Government confirmed a second CPO on almost 70 homes along Edge Lane and surrounding streets.

The first was quashed in the High Court in November, 2006, on a technicality.

Head of gateways at Liverpool Vision Rob Monaghan said: “The Edge Lane West Project has the continued support of the vast majority of the community, which was emphasised by the planning inspectors recommendation following a public inquiry into the scheme.

“It was further endorsed by the Secretary of State in confirming the Compulsory Purchase Order.

“The scheme partners are hoping for a successful outcome to the high court hearing on 23/24th March to enable development to begin early 2010.”

david.bartlett