Charity group Rehab is expected to meet with its lawyers tomorrow to sign off on a €1 billion legal challenge against the State.

The court action would be a claim for compensation under competition legislation.

Rehab is expected to contend that the manner in which the National Lottery has been operated is in contravention to European law.

Legislation placed a €20,000 cap on prizes charitable lottery operators such as Rehab could offer.

One estimate, by UK consultants Oxera, suggested Rehab has suffered losses in revenue of €600 million since the introduction of the Charitable Lotteries Scheme in 1997.

The Attorney General has told Rehab that its action would be vigorously defended by the State in the event it proceeds.

The action would be separate to a judicial review already undertaken by Rehab to the Government's decision to scrap the Charitable Lotteries Fund.

The fund was set up in 1996 to compensate private charitable lotteries affected by the dominant position enjoyed by the National Lottery.

Rehab claimed the decision to scrap it should be quashed by the courts. The issue is still before the High Court.

Separately, Rehab's lawyers A&L Goodbody has resigned after disclosed it had a conflict of interest.

As a result Rehab has decided to replace A&L Goodbody with a new firm of solicitors.

A&L Goodbody said it does not comment on client matters.

Rehab has also declined to comment.