Leading telecoms companies in the European Union could be broken up under plans to spur more competition in the EU's €289 billion a year electronic communications sector.

Viviane Reding, the EU's media commissioner, is also calling for a new, pan-European regulator to ensure market rules are applied consistently across national borders.

The proposals are part of the biggest overhaul to date of the EU's telecoms rulebook, as the European Commission seeks to bolster the use of ultra-fast broadband and other services, as well as increase cross-border competition.

Ms Reding's plans underline the swirling debate over a sector that is increasingly important to the union's economic competitiveness. They are likely to please new telecoms groups seeking to make further inroads into markets dominated by former state-run monopolies.

However, they could provoke a clash with established operators such as France Telecom or Deutsche Telekom, while many member states are wary of relinquishing regulatory powers.

Ms Reding argues that, if other measures fail to overcome an operator's dominant market position, it could be forced to separate - but not sell - its network and services divisions to guarantee that rivals can access their infrastructure.

She cites the example of BT, the leading British telecoms group, which agreed with regulators in 2005 to establish an independent unit that is responsible for giving the company's rivals access to its network that runs from phone exchanges to homes.

The business is obliged to treat BT's competitors on the same basis as the group's services for consumers and companies. However, critics question whether this model could be applied across the union.

Ms Reding is embroiled in a court case with Berlin over its decision to stop rival operators from selling services on Deutsche Telekom's new €3 billion ultra-fast broadband infrastructure. The German government retains a 32 per cent stake in the former monopoly.

As part of the proposed legislative shake-up, the European Commission plans to scrap regulation of 10 technical areas of the telecoms market which it believes have become competitive.

However, a draft of the long-awaited overhaul says: "Incumbent operators remain dominant on many markets, in particular in the area of fixed telephony and in most countries also in broadband."

Ms Reding is expected formally to present her plans in either October or November.