Advocate General Niilo Jääskinen, the European Court of Justice's (ECJ) legal advisor, said however that the bonus limit rules were valid and suggested they should not be overturned.
"In his opinion today, Advocate General Niilo Jääskinen suggests that all the U.K.'s pleas should be rejected and that the Court of Justice dismiss the action," according to a press release from the ECJ.
Jääskinen's advice is non-binding and the court's judges now have to decide whether the bonus rules are lawful.
Britain argued that the bonus rules were implemented on the wrong legal basis under the EU treaties. But Jääskinen dismissed the claim saying the correct laws were invoked. The Advocate General was also quick to point out the rules were not a cap "as there is no legal limit to the basic salary that can be paid there is no limit to the total level of pay".
Under the laws, banks are also asked to disclose their bonus payouts, but the U.K. said this would breach EU data protection laws. The ECJ advisor however said the disclosure is "not mandatory but rather a discretionary power".
Jääskinen also said member states had enough time to prepare for the bonus rules coming in.
Will court agree?
The U.K. government has had a fraught history with the ECJ. Earlier this year Britain sought to get a law that allows the EU to ban short-selling in emergency situations overturned. In this case Jääskinen gave his opinion and backed the EU's appeal, but the ECJ did not follow his advice and kept the rules in place.
While there is precedent for the ECJ disagreeing with the legal advisor, legal experts said this is unlikely to happen with the bonus cap law.
"The opinion is in line with general direction of travel of the EU post-financial crisis and that direction of travel is more EU intervention," Alexandria Carr, regulatory lawyer at Mayer Brown, told CNBC by phone.
"It would be surprising if the court departed from this particular opinion."
U.K. 'low influence'
Jääskinen's opinion comes at a tough time for the U.K.'s coalition government who is facing pressure from the anti-EU party UK Independence Party. In the south-east U.K., voters will go to the polls Thursday in Rochester and Strood in a by-election today that is widely expected to give UKIP it's second member of parliament.
Britain has clashed with the EU over a number of issues from financial rules to budgets, and the ECJ opinion on the bonus cap is likely to show a country with little overall influence in the 28-nation bloc, according to analysts.
"It is another blow to the UK and comes on a bad day as it looks likely it will take a loss in the by election and provides ammunition to UKIP to show that the UK has low influence," Raoul Ruparel, head of economic research at think tank Open Europe, told CNBC by phone.