Rishi Sunak’s plan to scrap thousands of EU laws by the end of this year risks triggering a full-scale trade war between the UK and Brussels, senior figures in the European Union have warned.

Letters from leading EU politicians, seen by the Observer, reveal deep concern that the UK is about to lower standards in areas such as environmental protection and workers’ rights – breaching “level playing field” provisions that were at the heart of the post-Brexit trade and cooperation agreement (TCA).

In retaliation, EU leaders in the European Commission, the European parliament and the council of ministers are preparing what they call their own “unilateral rebalancing measures” in secret meetings in Brussels. Sources say these are certain to include the option of imposing tariffs on UK goods entering the EU single market.

The dispute, caused by the Sunak government’s determination to scrap thousands of EU laws in order to demonstrate that he is “getting Brexit done”, now risks souring EU-UK relations just when progress appeared to be being made on the thorny problem of the Northern Ireland protocol.

The prospect of a trade war with the EU comes amid growing evidence that Brexit is inflicting serious damage on the UK economy. Last week the International Monetary Fund (IMF) said it expected Britain to grow at a slower rate than any other of the G7 leading industrialised countries and Russia, which is being economically drained by its war with Ukraine.

Paul Johnson, director of the Institute for Fiscal Studies, said labour shortages and other “continuing challenges from Brexit” were among the factors causing the UK’s sluggish performance. The most recent post-Brexit poll of polls shows that 58% of UK voters are now in favour of rejoining the EU – the highest level since the 2016 referendum – with just 42% wanting to remain outside the bloc.

Under the TCA, the UK agreed to maintain high standards on labour and social protection, the environment, climate and other areas in order to ensure fair conditions for UK-EU trade, in return for the EU agreeing to tariff-free access to the single market for British manufactured goods.

But now Sunak’s attempt to show the UK is “taking back control” by axing much of EU retained law within the next 10 months risks triggering another Brexit-related economic crisis.

The warnings of retaliatory moves by the EU have been issued by two senior figures involved in the planned European response: France’s ex-Europe minister Nathalie Loiseau, who co-chairs the joint EU-UK parliamentary forum set up under the TAC, and David McAllister, the German MEP who chairs the European parliament’s foreign affairs committee.

Speaking to the Observer, Michel Barnier, the EU’s former chief negotiator, also issued a warning to Sunak over the move. “There is a sensitivity in the next few months about the risk of dumping against the EU – what we call a level playing field,” he said. “It is a point linked to the new law of Mr Sunak concerning so many EU regulations that he wants to get rid of. It’s a choice. He is free to do that, but I just recommend to be careful.”

In a letter to Labour MP Stella Creasy, chair of the Labour Movement for Europe, Loiseau said the EU was “really concerned” about the effects of the retained EU law bill, which will have its second reading in the House of Lordson Monday.

She told Creasy: “The European Commission is closely following the situation and is making sure to be ready for any additional controls that would be needed to protect the EU single market starting from 1 January 2024.”

She also warned of further damage to EU-UK relations at a crucial period. “At a time when we are seeing a more constructive and collaborative spirit between the EU and the UK, the passage of this bill in its current form could risk progress being made in other areas of the relationship,” she said.

Also responding to inquiries from Creasy about the EU’s attitude to the bill, McAllister made clear that options for the strongest retaliation were being prepared: “Our agreements contain mechanisms to ensure non-regression from the current high levels of protection in labour and social standards, environment and climate, as well as rules on subsidies, and the possibility to apply unilateral rebalancing measures.

“The European parliament and the council, as co-legislators, will soon adopt a regulation laying down rules and procedures to ensure an effective and timely exercise of the European Union’s rights in enforcing and implementing the withdrawal agreement and the trade and cooperation agreement.” He added that the “[European] commission is preparing an assessment, which will be presented shortly to the members of the European parliament. Due to the sensitivity of the topic, this meeting will be held in camera.”

Charles Grant, director of the Centre for European Reform thinktank, said the worries in Brussels were real and ran deep. “The EU is getting seriously concerned about the impact of the retained EU law bill on the level playing field. It fears that if the UK abandons high social and environmental standards, its companies will have an unfair advantage over EU firms.

“The trade and cooperation agreement allows the EU to take countermeasures against the UK for breaches of the level playing field – for example, by removing zero-tariff access to the European market.

“The commission is not saying much about this at the moment, as everyone is focused on sorting out the NI [Northern Ireland] protocol. But if and when a deal is done on the protocol, the arguments will start on the REUL [retained EU law] bill. Some MEPs are already talking of a trade war.”

Creasy said: “When we left the EU, the government claimed we could have higher standards. Now it is increasingly clear they plan to rip up thousands of workers’ rights, environmental laws and consumer protections, and in doing so start a trade war with Europe at the same time.”

The TUC warned recently that the retained EU law bill could mean essential rights being removed or watered down without proper parliamentary scrutiny, sparking a damaging trade dispute with Brussels. It said workers’ rights that were at risk included holiday pay, equal pay for women, parental leave and equal treatment for part-time workers.

A government spokesperson said: “The Retained EU Law bill will enable us to amend or remove burdensome retained EU law and ensure we can create the best regulatory environment in the UK to drive economic growth, boost innovation and develop a competitive advantage in future technology.

“This is not about watering down standards, such as our strong record on workers’ rights, maternity rights, or environmental protection, as we have raised our domestic standards over recent years to make them some of the highest in the world.

“We remain committed to upholding our international obligations, including the Withdrawal Agreement and the Trade and Cooperation Agreement, and will take the action necessary to safeguard these within UK domestic law.”