The ADDE is a pan-European political party that includes 15 MEPs from British eurosceptic party Ukip, as well as members from Germany’s anti-immigrant AfD group.

The EP has co-funded pan-EU parties since 2004 for the sake of stimulating interest in EU elections.

The EP, in an auditor's report cited by the British daily, said the ADDE used the EU funds to conduct polling for Ukip in the 2015 UK general election, in Scottish and Welsh elections this year, and in this year’s Brexit referendum.

“These services were not in the interest of the European party, which could neither be involved in the national elections nor in the referendum on national level”, the EP watchdog said.

“The administration discovered a substantial number of activities for which financing ought to be considered as non-eligible expenditure”, it added.

It also named three Ukip party staff who received €133,000 from ADDE to conduct the polls even though EU rules said any researchers have to be independent consultants.

“The expenditure related to them is found non-eligible as the consultants were paid for an activity that was predominantly or even purely in the interest of the national party Ukip and therefore are considered as prohibited”, the report said.

The Guardian said that part of the €501,000 of grants to be withheld included €23,000 for ADDE affiliate the Belgium’s People’s party and €34,000 from The Institute for Direct Democracy in Europe, a Ukip-linked think tank, said to have spent the funds to persuade Dutch people to vote against an EU-Ukraine treaty in a national referendum in April.

EP political chiefs are set to approve the measures at a behind-closed-doors meeting on Monday.

The EP report said that if they go ahead, as expected, the ADDE would likely go bust.

The revelations by the Guardian prompted an angry response by Ukip’s former leader, British MEP Nigel Farage who told Sky News: “This is pure victimisation. I am the most investigated MEP in history. Look at what the pro-EU groups were spending”.

The ADDE said in a statement posted on its website: “The Parliament administration has for months taken an aggressive and hostile attitude over the audit, amounting to nothing short of deliberate harassment”.

It added that the punitive measures would “question the very existence of our group” and pledged to fight the decision at the EU court in Luxembourg.