The European Commission has accused the Irish Government of colluding with tobacco manufacturers to help them protect their profit margins.
The EU executive made the claim yesterday when it said that it was taking legal action against Ireland for making an agreement with tobacco manufacturers that sets a minimum price on a packet of 20 cigarettes and other types of tobacco.
"Introducing minimum retail prices for cigarettes is against community law and mainly benefits manufacturers who are able to protect their profit margins," said tax commissioner Laszlo Kovacs.
Mr Kovacs indicated that he would take a case to the European Court of Justice in Luxembourg if Ireland did not scrap its price agreement.
Under an agreement reached with the Irish Tobacco Manufacturers' Advisory Committee, the Department of Health has set a minimum price for the sale of 20 cigarettes of about €1.30.
This price was arrived at by using information on volume sales supplied by the tobacco companies for filtered and unfiltered cigarettes.
A spokesman for the Department of Health said the agreement was made for the primary purpose of preventing low-cost selling of tobacco products in Ireland.
"Price control is an effective means of protecting children from becoming addicted to cigarettes and in encouraging smokers to quit," he said.
"Ireland notes the commission's statement today expressing concerns that some member states' tobacco control measures infringe community law."
He said the Government would study the legal case before deciding whether to challenge it.
The commission advised that if governments wanted to discourage smoking through high cigarette prices, they should raise excise taxes.
"I strongly support member states in their efforts to implement new health policy," said Mr Kovacs. "However, this must respect community law."
About 80 per cent of the €6.45 price of a packet of cigarettes in Ireland is made up of tax.
The commission also opened infringement proceedings against Greece, France, Belgium, Ireland, Italy and Austria over the same issue.
In a communication explaining its decision, it said public authorities setting the minimum price on cigarettes distorted competition and impaired the right of the manufacturer or importer of cigarettes in the 25-nation EU to determine the selling price.
One of Ireland's biggest tobacco companies, PJ Carroll refused to comment.
The public relations representative of the Irish Tobacco Manufacturers' Advisory Committee did not return phone calls.
Smoking-related illnesses account for more than 6,000 deaths each year in Ireland and 750,000 deaths each year in the European Union.