The billionaire prime minister of the Czech Republic faces an unlikely political threat after his local council found him guilty of breaching conflict of interest rules by owning major media outlets while holding high office.

Andrej Babiš has withstood mass protests demanding his resignation, a criminal fraud inquiry and an ongoing European commission investigation into his business practices.

But in what critics are hailing as a breakthrough verdict, Černošice council – a small municipality of just 7,000 people, including an upmarket village just outside Prague where Babiš lives – upheld a complaint by Transparency International (TI) that he is breaking the law through his ownership of the giant multi-industry Agrofert group, which includes two national newspapers and the country’s biggest commercial radio station.

The council is the first Czech institution to declare that the PM still controls Agrofert, even though he put the conglomerate into a trust to avoid any accusations of wrongdoing. TI argues that Babiš is the trust’s ultimate beneficiary and that Agrofert remains firmly in his grip.

The council’s finding empowers it to impose only a relatively modest maximum penalty of 250,000 Czech crowns (£8,400). But it could have wider resonance by influencing the outcome of the European commission’s investigation into Agrofert’s receipt of lavish EU subsidies, opened in response to a separate TI complaint.

“It has implications for the European complaint,” said David Ondráčka, director of TI’s Czech office. “The European commission has said that while it is looking at the matter and making its own assessment, it is also curious as to how the Czech authorities will deal with it. The possibility of the Černošice ruling being transferred to the European complaint really worries Babiš.”

Babiš has responded angrily to the ruling, which he described as “politicised”, and vowed to challenge it. “I will definitely appeal,” he wrote in a text message to Czech journalists. “I do not understand how officials who deal with traffic offences can decide on such a complex legal problem.”

He did not respond to a request for comment on the appeal from the Guardian.

TI took the matter to Černošice council because Czech law states that conflict of interest complaints must be registered with the relevant local authority. The municipality commissioned outside consultants and legal advisers to tackle a question beyond its normal competence range.

The verdict comes after Babiš’s son Andrej Jr was reported telling Czech journalists in November that he was lured to Crimea and “kidnapped” to stop him testifying to police investigating criminal allegations that his father fraudulently obtained EU funds more than a decade ago for a countryside hotel and conference centre, known as Stork’s Nest. Babiš denied the account and said his son – who he said was mentally ill – had been tricked into giving it.