Edinburgh City Council is to take legal action against the consortium building the city's £545million tram system amid a row over money.

The council says the contractor is in breach of contract and has warned the project will be delayed and may go over budget.

The move is an attempt to resolve a dispute which began in February this year.

Tram company Transport Initiatives Edinburgh (Tie Limited) has now launched formal contractual dispute resolution proceedings against the Bilfinger Siemens CAF (BSC) consortium.

It comes after a report, ordered by the council, revealed that the project could go over budget and is now forecast to be completed by spring 2012.

TIE's chief executive Richard Jeffrey said: "Because of commercial confidentiality I am not going into minute details of the dispute, but they can be characterised by the responsibility for and the cost of delays and extensions of time and responsibility for and changes in the design.

The report also found that despite mediation there remained "fundamental differences" between Tie and the consortium on a number of issues which could affect the programme and costs of the project.

The dispute has injected huge uncertainty into the whole project, with Scottish Conservatives saying the council should have brought in the lawyers much earlier.

But the council insists the trams will be opened in the spring of 2012, but they admit that could yet slip back further.

Jenny Dawe, leader of the council, said: "We continue to have assessment made of the operational case, it would be very difficult to give a figure, all we are saying at the moment is that it will be difficult to keep it within the £545million."

Work continues on Princes Street, and there has been no word from the contractors, but the future of the project now lies in the hands of lawyers.