The UK has been told by the European Union to withdraw a trade bill that its own government admits breaks international law over a Brexit agreement – or it could face legal action. 

The UK Internal Market Bill has further complicated the messy extrication process as Britain unpicks nearly 50 years of European integration, and led European Commission vice president Maros Sefcovic to head to London to demand clarification.

Its potential implications for Northern Ireland, which is slated to have a special status after Brexit, also prompted a warning from U.S. Democrat Nancy Pelosi for London to uphold the troubled territory's peace process.

The UK government wants a "level playing field" for selling goods around the UK, but by cutting away at devolved powers in the Internal Market Bill it could break the deal agreed over the future trade arrangements for Northern Ireland.

At the meeting in London, Sefcovic told British minister Michael Gove that unless the measures were withdrawn "by the end of the month," Brussels would consider taking legal action.

The European Commission warned that the UK "has seriously damaged trust between the EU and the UK," and scorned Downing Street's contention that the bill would preserve the peace in Northern Ireland.

"In fact," the statement said, Brussels "is of the view that it does the opposite."

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The British government said it would not give way on the issue.

"I made it perfectly clear to the vice president Sefcovic that we would not be withdrawing this legislation and he understood that. Of course he regretted it," Gove said.

The bill would give British ministers unilateral powers to regulate trade in England, Scotland, Wales and Northern Ireland, once the force of EU law expires after a post-Brexit transition period at the end of this year.

But under the EU Withdrawal Agreement, Britain is meant to liaise with Brussels on arrangements for Northern Ireland, which will have the UK's only land border with the EU, and where decades of bloodshed ended with a historic peace deal in 1998.

Both sides in the Brexit process spent years debating how to avoid the return of a physical border on the island of Ireland after the UK leaves the European Union. An agreement was finally reached in late 2019.

France told Britain it was "unacceptable" to violate the EU treaty and the pound slumped further on currency markets, with businesses fearing disruption to trade at the end of this year if there is no UK-EU agreement on trade.

Irish premier Micheal Martin, who spoke by phone with UK Prime Minister Boris Johnson on Wednesday evening, said such an outcome would be "gross irresponsibility" on top of the economic havoc inflicted by COVID-19.