Justice commissioner Franco Frattini said that the Italian authorities would have to check each one of the thousands of applications for regularisation to make sure they comply with EU law.
"I am asking the Interior Minister Giulio D'Amato to examine one by one the 350,000 requests for regularisation from immigrant workers," said Mr Frattini in Rome.
"Checks are needed to determine if these are fictitious demands or if they effectively correspond to a work offer and lodging. Otherwise, European Union sanctions are envisaged," he said.
Taking figures from a 2004 survey, the justice commissioner pointed out that Italy had a higher than average amount of people working on the black market.
"Italy had 16-17 percent working 'on the black', compared to a European average of four to five percent: the fight against illegal immigration also has to be seen in this light."
Mr Frattini's warning comes after Rome last week announced that it intended to put in place a quota of 350,000 non-EU citizens who would be able to legalise their status in Italy as well as regularising more than 500,000 workers already in the country.
This is not the first time the EU has warned member states about these kinds of moves.
Madrid's surprise move was also criticised by some member states leading to calls for an early warning system to be put in place when governments are considering immigration procedures that will affect other countries.
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