The proposals are part of an EU-wide emissions trading scheme designed to cut pollution and meet the bloc's Kyoto Protocol climate change targets.

"The United Kingdom was entitled to propose amendments to the plan submitted to the Commission, even though they increased the total quantity of emission allowances," the Court of First Instance in Luxembourg said in a statement.

The EU's trading scheme was launched in January as the mainstay of Europe's effort to meet targets set under the Kyoto Protocol on climate change. Officials from some 190 countries will meet in Montreal, Canada next week to review the Kyoto deal.

Wednesday's ruling means Brussels must reconsider revised proposals from the UK, which would allow British industry to pump out nearly three percent more CO2 than originally planned in the first phase of the EU's trading scheme (2005-2007).

Britain wanted to use softer reduction targets than in its original plan because of revisions to data on emissions and energy use. The UK has been implementing its original plan for several months while it pushes its case to bring in the revised proposals.

"Today's ruling requires the Commission to consider the UK's amended plan and to make fresh decisions on its compatibility with the EU emissions trading directive's requirements," said a spokesman for the Department of Environment, Food and Rural Affairs (Defra).

"We are deeply committed to making a success of the EU's trading scheme and fighting climate change," he added.

Unlike some European countries, Britain is on course to meet its Kyoto targets on cutting greenhouse gas emissions. But the UK is struggling to meet its own tougher goals.

The Commission said it would examine the ruling closely but declined to speculate on its wider implications.

Analysts said prices for CO2 allowances traded under the EU scheme could come under pressure if the UK gets the go-ahead to use its revised plan.

Allowance prices were down 55 cents at 21.50 euros a tonne by mid-morning.