France was warned by the European authorities today that it would face disciplinary proceedings and possible court action if EU freedom of movement is not enshrined in French law by next month.

The ultimatum from Brussels, in a letter to the French government from the European commission, upped the ante in the ferocious row over France's treatment of immigrant Gypsies, a dispute that hijacked a recent EU summit and saw insults traded over the second world war.

All 27 European commissioners decided todayto set France a deadline of 15 October to remedy the member state's failure to observe European law, namely a directive from 2004 giving all EU citizens freedom of movement across the union.

"France is not applying European law as it should," said Viviane Reding, the commissioner for justice and fundamental rights who sparked one of the worst rows in the EU for years this month by calling French treatment of Roma immigrants from Romania "a disgrace" and "appalling", reminiscent of the persecution they suffered in Vichy France during the war.

President Nicolas Sarkozy threatened to boycott an EU summit unless she retracted. An EU summit a fortnight ago descended into a slanging match. Sarkozy said Reding apologised. She denied it. She was criticised by fellow commissioners and European leaders for inappropriate language. But the commission, despite the huge pressure from Paris, insisted it would referee in the Roma row as the guardian of the European treaties and the arbiter of EU law.

Yesterday's decision singled out France for censure, although several other EU member states have not converted the 2004 directive into their national laws.

Some saw the commission's move as a minor rebuke to the Élysée Palace as it failed to rule on the more serious charge – whether the Sarkozy administration was in breach of fundamental EU rights by targeting the Roma for ethnic discrimination.

French immigration minister Eric Besson told MPs: "We should all be happy. France is emerging with its head high from its exchange with the commission. It's good news for everyone."

José Manuel Barroso, the commission president, said he did not want to go into the "very sensitive legal issues", suggesting he was keen to avoid re-igniting the row with Sarkozy. But his officials insisted there was no climbdown.

A senior EU official said: "The French have until 15 October. They will never do it by then. There will be an infringement procedure." This could end up in France being hauled before the European Court of Justice.

Since the end of July when Sarkozy ordered a clampdown against Roma or Gypsy immigrants from Romania and Bulgaria, more than 1,000 have been expelled and more than 100 camps have been demolished, a policy that has been condemned by the Vatican, the UN, the European Commission, human rights groups and the French opposition.

The argument for targeted discrimination rested on a French interior ministry paper ordering priority action specifically against the Roma. It was in circulation for five weeks until being withdrawn after being leaked to the French press.

Commission officials said that the onus was on Paris to prove that it was not targeting Gypsies as an ethnic group. Reding said: "If France has affirmed that its laws do not discriminate against certain ethnic groups compared to others, we need the proof to assure of us of that. We are asking that France supply the documents, the details of the expulsions which have taken place."