MPs last night demanded urgent action amid fears that major job creation and regeneration schemes in the North-East had been put at risk by European bureaucrats.

Major regeneration projects in Middlesbrough, Gateshead and Newcastle were stalled last December following a shock European Commission ruling outlawing the use of public money on land and property which is then handed over to the private sector.

The system, known as Gap Funding, relies on development agencies such as One NorthEast and Yorkshire Forward putting in public money to restore deprived areas and make them viable for private investment.

But the Commission ruled that the arrangement breached competition regulations by using state aid to give some developers an unfair advantage.

Two months ago, One NorthEast regeneration director, Jonathon Blackie told MPs he suspected the decision had been triggered by the arrival of Siemans and Samsung in the North-East.

He feared the Commission wrongly decided that reclamation work for the sites used by the companies had been a state subsidy.

But Mr Blackie told the all-party Commons environment, transport and the regions committee that the Commission's decision was "disastrous" for North-East regeneration.

He said regeneration projects for Newcastle's Grainger Town, East Gateshead and Middlesbrough town centre had been brought "to a halt".

And yesterday, the Commons committee - including Easington Labour MP John Cummings and Vale of York Tory MP Anne McIntosh - demanded urgent action to sort the mess out as it was threatening the urban renaissance of northern cities.

MPs urged the Government to work with the Commission to create a new framework for regeneration.

But they concluded that "illogical and ill considered' Commission decision such as this brings the European Union into disrepute".