Brussels will next week open a formal state-aid investigation into benefits allegedly granted by the Greek government to its flag-carrier Olympic Airlines, in a move that could upset the planned privatisation of the troubled company.

The move represents the latest attempt by the European Commission to force Athens to end its practice of propping up Olympic - a quest that has soured relations between the two and has resulted in a legal challenge by Brussels in Europe's highest court.

The probe is fresh evidence of the Commission's determination to crack down on state aid in the European aviation sector, which until a few years ago had a reputation as one of the most protected and subsidised industries in the region.

But, under the stewardship of Transport Commissioner Ms Loyola de Palacio, many European governments have been forced to clean up their act, and some airlines have been pushed out of the market, such as former Belgian flag-carrier Sabena.

It is now the subsidies received by non-European airlines that cause most concern in Brussels.

The Olympic investigation centres on the privatisation plan presented by the Greek government last year. The plan would split the old Olympic Airways into two entities, one of which would initially continue to be controlled by the state while it looked for a private investor.

The Commission is concerned about Athens' move to separate the unprofitable parts of the company, such as ground handling and technical maintenance, from the commercially viable flying operations. This could leave the loss-making business under state control.

The rescue plan is intended to ensure Greece can provide an official carrier for this summer's Olympics in Athens. An additional one million visitors are projected to fly to Greece, according to Athoc, the games organisers.

Under EU rules, the process could constitute state aid, which would need Brussels' approval