The union will have the power to impose punitive measures on Britain without going to court, according to a draft text setting out the terms of the proposed two-year transitional deal from March 2019.
The text said there should be a mechanism allowing the EU to "suspend certain benefits" of single market membership during the transition period without necessarily having to resort to the European Court of Justice (ECJ).
Such a move would be considered if referring the matter to the ECJ "would not bring in time the necessary remedies", according to the document, which sets out the EU's position on a transition deal in legal language.
The document is likely to further infuriate hardline Brexit supporters. Whitehall attempted to play down its significance, insisting it would form the basis for a negotiation.
A Department for Exiting the European Union spokesman said: "This is a draft document produced by the EU that simply reflects their stated directives.
"The Secretary of State set out the UK's position in his speech in Teesside last month.
"Together these provide a solid foundation for the negotiations on the implementation period which have begun this week with the aim of reaching agreement by March European Council."
The developments came as Theresa May prepared to chair the Brexit "war cabinet" in sessions on Wednesday and Thursday to thrash out the UK's position on crunch issues regarding the future relationship with Brussels.
The Prime Minister sidestepped questions about rising Tory tensions on Brexit and calls from within her own party for her to "sling out" arch-Leavers.
Read More
She refused to directly engage with a question on whether she would like vocal Brexiteers such as Foreign Secretary Boris Johnson and backbencher Jacob Rees-Mogg to be more circumspect, after pro-EU Tory MP Anna Soubry claimed the Government was "in hock to 35 hard ideological Leavers".
