The European Commission was ordered on Wednesday by a top European Union court in a precedent-setting decision to pay damages for its wrongful block of a merger bid.

It was for the first time the EU's antitrust watchdog was held financially liable for illegal discharge of its legal powers.

The European Court of First Instance ruled that the French electric equipment maker Schneider Electric is entitled to part of its losses due to the Commission's overturned veto of the company's takeover of French rival Legrand six years ago.

Schneider bought 98 percent of Legrand's shares in 2001 and then applied for antitrust approval. But the EU's antitrust watchdog ruled against the deal, saying it would weaken competition on European markets for low-voltage electrical equipment.

The court found that the commission's veto was seriously flawed since Schneider was denied the right of defense and so the company must be compensated "for the harmful consequences."

The commission's decision, which was overturned by the EU court in 2002, forced Schneider later to sell its majority stake in Legrand at a lower price.

Schneider acquired its stake in Legrand for 5.4 billion euros in cash and shares and sold it to US private equity fund Kohlberg, Kravis and Roberts (KKR) and French holding firm Wendel Investissement for 3.63 billion euros in 2002.

The world's biggest maker of circuit breakers claimed it lost 1.66 billion euros for the resale of shares, legal fees and the penalty it had to pay the buyers for delay in the sale.

The EU's second highest court said that Schneider should be paid back for two-thirds of the reduction in price paid by KKR and Wendel because the sale was delayed by six months as the commission reexamined the case following the court's overturn.

The Luxembourg-based court also ordered the commission to repay Schneider the legal fees relating to the reopening of the merger review.

A court-appointed expert will calculate the exact amount of the damages to be awarded.

In response to the court's decision, commission spokesman Jonathan Todd said, "We will study the ruling carefully."

The commission will have more than three months to decide whether to challenge the ruling before the European Court of Justice, the EU's highest court.

Analysts said they were surprised by the court's judgment, worrying it may open the floodgates for more cases to be raised against the commission for compensation in antitrust vetoes.

At present, British package tours group MyTravel, formerly known as Airtours, is also seeking damages from the commission for blocking its takeover bid in 1999, another decision having been overturned by the court.