The Electoral Commission has opened an investigation into Ukip's finances amid allegations it misspent European Union money.

The watchdog is examining claims that the party took funding from two European groups to which they were not entitled.

It is also looking into whether there was any breach of UK election law, it said.

The investigation stems from a European Parliament audit which found that the political group Alliance for Direct Democracy in Europe (ADDE) and its affiliated foundation the Initiative for Direct Democracy in Europe (IDDE) had wrongly given EU cash to Ukip.

It concluded the groups had misused funding from the bloc by financing activity including UK polls for Ukip between February and December last year.

They included pre-election surveys in Ukip target seats such as Thanet South, where Nigel Farage unsuccessfully stood for Parliament, and opinion polls ahead of the EU referendum, it said.

The EU ordered ADDE, a European grouping to which Ukip belongs, to repay €172,655 (£146,696). It also announced the group will no longer get a €248,345 euro (£211,000) grant as a result misusing of its funding from the bloc.

European regulations allow parties to claim for a number of expenses including administration and campaigning costs. However, EU cash cannot be used to fund parties, election candidates and political foundations at either the national or European level.

UK rules state that parties are responsible for checking that donations and loans come from a permissible source and they must also report some to the Electoral Commission.

If donations and loans are not from a permissible source, a party has thirty days to return the donation and must report the impermissible donation to the Commission.