The European Union is moving closer to using up to £185 billion of frozen Russian assets to finance a massive loan for Ukraine, a step that has now triggered a formal legal response from Moscow.

The move would allow EU leaders to work out at a summit next week how to use the tens of billions of euros in Russian Central Bank assets to underwrite a huge loan to help Ukraine meet its financial and military needs over the next two years.

Russia's central bank confirmed on Friday that it has filed a lawsuit in Moscow against Euroclear, the Brussels-based financial services company that holds the bulk of the frozen funds, accusing it of illegally blocking access to Russian state assets since the start of the war in Ukraine.

The legal action marks the Kremlin's first concrete retaliation against Brussels as the European Commission pushes ahead with plans to raise £80 billion for Kyiv by borrowing against, or potentially seizing outright, Russian reserves immobilised across the bloc.

Most of the frozen funds are held in Belgium by Euroclear. The remainder is spread across other EU jurisdictions. 

The assets were frozen in 2022 after President Vladimir Putin ordered Russia's full-scale invasion of Ukraine. 

Under current sanctions rules, the funds are immobilised in six-month intervals, a process that requires unanimous agreement from all 27 EU member states. 

The European Commission has now proposed using emergency EU powers to lock the assets indefinitely, allowing them to be used as collateral for a long-term loan to Ukraine.

Russia's central bank said Euroclear had made it 'impossible to access funds and securities belonging to the Bank of Russia' through what it described as illegal actions, and said it would seek damages equivalent to the value of the blocked assets, frozen securities, and lost investment income.

It added that Moscow would pursue 'all available legal and other mechanisms to defend its interests' and would also challenge the EU's actions through international courts in both 'friendly and hostile countries'.

Belgium, which hosts Euroclear, has raised concerns about the plan, warning it could be exposed to massive legal claims from Russia. 

Brussels has asked other EU states to share the legal and financial risks, but that proposal has faced resistance, including from France, whose banks hold a smaller share of the frozen assets.