Peter Upton/telegraph.co.uk

Spain could be hauled before the European Court of Justice over its "land grab" law, which has allowed developers to plunder land belonging to foreign homeowners.

In a victory for hundreds of expatriate Britons who have had property seized, the European Commission has written to the Spanish government saying that the law breaches EU regulations as well as human rights statutes.

The rebuke follows a commission investigation into the poorly drafted 1994 planning law, Ley Reguladora de la Actividad Urbanista, which was originally intended to speed up development on the Costa Blanca.

Over the past year The Telegraph has reported how loopholes have been exploited by Spanish developers - who have been able ask for land to be reclassified from rural to urban without the owners' permission.

Developers have already made compulsory purchases of 20,000 properties at fractions of the market value. Last year, the European Parliament launched an investigation. Its report condemned the law and criticised apparent corruption among developers, officials and lawyers.

However, its call for a halt to the practice was ignored.

The European Commission's new letter gives Jose Luis Rodriguez Zapatero, Spain's socialist prime minister, until May 21 to resolve the situation. If the Commission is not satisfied, Mr Zapatero's officials will be issued with a summons to appear in the court in Luxembourg. The court has the power to inflict unlimited fines and stop European grants to Spain.

The Commission's stance has heartened Charles Svoboda, a former head of Canadian Intelligence, who lives in Benissa, near Benidorm, one of the main areas under threat from the land seizures.

"Madrid will ignore the Commission's infringement procedure or stall but Brussels has the bit between its teeth," said Mr Svoboda, who leads a victim protest group.

"If it doesn't get a satisfactory response, the commission will have no choice but to take Spain to the European Court of Justice. We have sympathisers in Brussels who will ensure this happens. To victims this is a ray of hope."

At least 20,000 people living on the Costa Blanca have protested about the law, under which estate agents - often in league with corrupt local politicians - have made enormous profits by snapping up land prime for development. Residents have also been forced to pay huge amounts towards new infrastructure, such as roads, drainage and street lighting - which developers would normally have to shoulder.

Mr Svoboda and his supporters are now threatening to sue local politicians. "We can't easily take on the developers because they just fold up their tents, go bankrupt and walk away," he said.

"But we can take on the mayors and town councillors who gave developers permission to use this illegal law to deprive people of their homes. We are going to take the mayors to court to demand compensation and damages. They know they are breaking the law - they should be liable."

The intervention from Brussels may come too late for victims such as Karen Marcos, 47, who is British, and her Spanish husband Juan. They have lived in their three-bedroom house in Finestrat, Benidorm, for 20 years. Now, developers are taking their home to make way for a new block of flats without giving them compensation.

The couple have already been forced to pay €97,000 (£68,000) towards new infrastructure costs, and 60 per cent of their land has been taken. "We could be forced to pay a lot more," said Ms Marcos, who works for a local newspaper. "They have told us they will pay us €92,000 for the small bit of remaining land and our home."

Mr Marcos, who has held down two jobs to pay the mortgage, said: "All that work, all for nothing. This is what my country is doing to me."

Government spokesmen in Madrid and Valencia said that no ministers were available to comment on the process instigated by Brussels.