The European Union is planning new subsidies to promote in-house green technology and counter a US measure that the continent's carmakers see as protectionist, the bloc's internal market commissioner said Tuesday.

The US Inflation Reduction Act (IRA) contains around $370 billion in subsidies for green energy, as well as tax cuts for US-made electric cars and batteries.

European countries have been unsettled by the policy, which lavishes benefits on buyers of US-made electric cars, saying it is discriminatory.

"We need to react, we cannot stay still," European Internal Market Commissioner Thierry Breton told a business forum in Madrid.

The former French economy minister said he was "working hard to propose to our industrial ecosystem something which could be comparable" to the US plan.

"We will propose something very quickly," he said.

Among IRA's provisions are  tax credits for electric vehicles –- up to $7,500 for new purchases –- that will only apply if the product is assembled in the US and the majority of components are sourced domestically or from a free trade partner.

Breton said this would create a "barrier" to trade which was "unacceptable" and violated World Trade Organization rules.

US President Joe Biden said last month the Inflation Reduction Act was never intended to disadvantage US allies.

While negotiations are underway between Brussels and Washington for a solution, calls for a tough line from some in the EU have stoked fears of a trade war.