The European Commission has threatened legal action against the UK, saying a test of eligibility for benefits discriminates against foreigners.

The "right to reside" qualification for benefits is automatic for UK nationals but assessed for other EU nationals.

The commission says that breaches EU law and has given the UK two months to say how it will address the issue.

Ministers said this was a "fundamental challenge" to the UK's right to decide its own social security arrangements.

They fear taxpayers could be forced into handing out more than £2bn to EU nationals - including so-called "benefits tourists" - if the UK has to comply.

A range of entitlements - including child benefit, child tax credit, state pension credit, jobseekers' allowance and unemployment support allowance - are given only to those with a "right to reside" in the UK.

While UK citizens qualify by right, nationals from other EU countries are considered on a case-by-case basis.

The European Commission says this is a breach of EU social security co-ordination rules giving all citizens equal rights.

Brussels said it had had a "huge number of complaints" from EU nationals on the issue dating back to 2008, and that British citizens working in other EU countries did not face the same restrictions.

Laszlo Andor, Commissioner for Employment and Social Affairs, said the EU's legal position was "very sound".

"The EU insists on the right of mobile workers to move from one country to another and, in certain places, they are entitled to benefits," he told the BBC.

"We want to protect the rights of all EU citizens."

Most people moving abroad already had offers of work or were looking for it, he said, rather than primarily wanting to take advantage of more generous benefits.

"It may happen that some of them do not a find a job immediately. It is very important that, in these cases, the rights should be respected."

And he added: "People primarily move from lower wage countries to higher wage countries and that also certainly also applies to the level of benefits when it is higher. But since we have a European Labour market we have to accept this as a fact."

The Commission says it is sufficient to apply an existing EU-wide "habitual residence" test to determine eligibility and screen out those who are not entitled.

As part of this, people have to demonstrate the UK is their permanent residence and place of work and that they have strong links with the country - such as their children going to school there.

Employment minister Chris Grayling, who met EU officials this week to discuss the issue, said the government had an obligation to support those who work and pay their taxes here.

But he added: "It is clearly completely unacceptable that we should open our doors to benefit tourism.

"I'm really surprised that the European Commission has chosen to go into battle on this very sensitive issue, when there are clearly far more pressing problems to solve in Europe."

Writing in the Daily Telegraph on Friday, Work and Pensions Secretary Iain Duncan Smith said the proposals "pose a fundamental challenge to the UK's social contract".

"They could mean the British taxpayer paying out over £2bn extra a year in benefits to people who have no connection to our country and who have never paid in a penny in tax."

The UK Independence Party, which campaigns for Britain's exit from the EU, said the UK was "perfectly within its rights" to ask EU nationals to meet certain conditions before being able to access the welfare system.

Its leader Nigel Farage said: "It is not discrimination but simply a system to ensure that benefits are only paid to those who are entitled to them."