The Commission, the EU's executive arm, said the dam at Sivens, southern France, risked violating European water management rules and comes as the French government, hit by controversy, has cooled on the 8.4-billion-euro ($10.5 billion) project.
The EU said it was preparing to inform Paris of "a suspected violation of the water directive in the carrying out of this project," Commission spokesman Enrico Brivio said at a news briefing.
This EU directive is intended to "guarantee sustainable water management for the long-term," he said.
Opposition by activists against the dam in the Garonne department of southern France has been fierce and turned tragic last month when activist Remi Fraisse, 21, was killed protesting against the project in the southwestern Tarn region.
Those opposed to the project say the dam will destroy a reservoir of biodiversity and will only benefit a small number of politically well-connected farmers.
Those promoting the project, meanwhile, retort that the dam is in the public interest as it will ensure irrigation and the development of high-value crops.
Reacting to the move by Brussels, French Environment Minister Segolene Royal said the project, which is for now suspended, would obey EU demands.
"The contents of this European letter will permit the renewed project to meet the right criteria," Royal said after a cabinet meeting in Paris.
Last month's tragedy was the culmination of weeks of protests by opponents of the project that included litigation, hunger strikes and occupation of the site by activists.
Fraisse's death shocked France and sparked an even greater protest movement across the country, heaping pressure on the already embattled government of French President Francois Hollande.
The young man was killed in the early hours of October 26 after a long night of clashes between police and activists on the site of the project.
On Wednesday, a lawyer for the gendarme who threw the grenade said his client was not responsible for Fraisse's death.
"What happened was an accident," lawyer Jean Tamalet told Le Parisien newspaper, while acknowledging the grenade was thrown by his client.
The move by Brussels is the first stage of an infringement procedure and France has two months to argue its case.
If found to be in breach of the rules, the EU could withdraw co-financing for the project.