Osborne (pictured) said the proposed mandate for the European Securities and Markets Authority (ESMA) would represent an over-reaching of its powers and could harm British economic interests.
The suit, filed on Wednesday by Britain and the Czech Republic at the European Court of Justice (ECJ), contends the emergency powers, if granted, would be illegal and not granted by any EU treaty.
EU regulations on short-selling are expected to be implemented from November.
Short-selling has been a contentious issue in the UK in recent years. In 2009, the FSA introduced an “enhanced transparency” regime meaning institutions had to disclose all significant short positions in UK equities.