THE council's controversial plan to bail out the Arcade site development with taxpayers' money would break European Union rules if implemented, it has emerged.

In what appears to be further embarrassment for the authority, campaigners pointed out the error days before the final plan was due to be approved by cabinet, it is claimed.

Leading councillors are said to be fuming at the apparent gaffe, which will further delay development of the site in central Walthamstow.

The site was cleared nine years ago, during which time a number of privately-financed schemes have fallen through - much to the dismay of local residents.

The authority announced it would finance the development with £35 million of public money when developer St Modwen pulled out of funding the scheme.

The company was due to be retained as a designer and paid £500,000 for its services.

But the project now falls under European Union public sector procurement rules, which means the design contract must be put out to tender in order to guarantee value for money for taxpayers.

The latest development means work on the site is unlikely to begin before next May’s council elections.

It remains to be seen whether the council’s current plan, which would see a swimming pool relocated from Walthamstow’s Pool and Track, will survive the latest setback.

Fight the Height campaign group has been fighting plans for a 18-storey block on the site and claims to have drawn the potential breach of the rules to the council’s attention.

Co-ordinator Caramel Quin insists council officers initially did not seem to care that the council was breaking the rules.

She said: "But local residents care about the tower block threatening to overshadow the market, they care about a pie-in-the-sky cinema plan derailing efforts to save the EMD and they care about a rushed-through plan to use tens of millions of their money to expensively relocate a pool, but leave a track behind."

The council's bail-out plan was opposed by the Conservative group as well as Labour's coalition Lib Dems partners, splitting the cabinet.

Both parties insist there should have been more information and scrutiny before committing £35m of taxpayers' money to the scheme.

The Labour group rejected recommendations from the scrutiny committee that there should be a full financial appraisal and feasibility study of the scheme.