The ruling that the UK’s “right to reside” test on EU nationals based in the country is a breach of EU law is “an open invitation to benefit tourism”, said campaign group Migration Watch.
Work and Pensions Secretary Iain Duncan Smith has said the move could leave taxpayers facing a £2bn bill.
He said the move threatened to break the “vital link” which should exist between taxpayers and their own government.
Sir Andrew Green, chairman of Migration Watch, said: “This ruling is an open invitation to benefit tourism.
“A three-child family would receive £29,000 in benefits.
“Clearly this risks blowing the Government’s immigration policy out of the water. It must be vigorously opposed.”
Brussels threatened it would take legal action unless the test – which determines who qualifies for specific social security benefits – is dropped.
A Commission statement said the Government had two months to advise Brussels what it is doing to bring domestic social security rules in line with EU requirements.
“Otherwise, the Commission may decide to refer the UK to the EU’s Court of Justice,” it said.
Mr Duncan Smith is currently spearheading reforms to the country’s benefits system, bringing in the Universal Credit.
He said: “The EU settlement is supposed to protect the right of member states to make their own social security arrangements.
“But we are now seeing a rising tide of judgments from the European institutions using other legal avenues to erode away these rights, and we should be gravely concerned.
He added: “As if this week’s decision was not bad enough, we are also fighting increasing demands for the UK to pay benefits to those who have long since moved abroad, and who may never have made more than a token contribution to UK society.”
Employment Minister Chris Grayling said the ruling was “a very unwelcome development”.
“It’s obviously right that we support those who work and pay their taxes here, but it’s clearly completely unacceptable that we should open our doors to benefit tourism,” he said.
“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.”
Under UK rules a range of benefits are only given to those with a “right to reside”.
That is automatic for UK nationals , but residents from other EU countries have to pass a “right to reside” test.
The Commission said this meant the UK was indirectly discriminating against nationals of another member state, in breach of EU social security co-ordination rules.