The European Commission has threatened to take the UK to the European Court of Justice over air quality breaches.
The UK could end up paying as much as £300m in fines.
The government received a second and "final" warning from the commission after the levels of dangerous airborne particles, or PM10s, in London and Gibraltar exceeded EU limits.
The commission says high levels of PM10 may lead to serious health problems.
"Air pollution is bad for our health. It reduces human life expectancy by more than eight months on average and by more than two years in the most polluted cities and regions," said the EU's environment commissioner Janez Potocnik.
The UK government said the warning was "a surprise".
"It's disappointing that the commission has felt it necessary to issue a second and final written warning," said a spokesperson for the UK's Department for Environment, Food and Rural Affairs (Defra).
"As the commission is currently assessing the UK's request for additional time to meet the limit value in London, and has nine months to do so, it is difficult to see what further action the commission expects the UK to take."
"We remain confident that the evidence presented should satisfy the commission. Furthermore, the Mayor of London has committed to applying targeted measures at priority locations if necessary."
The UK received its first warning in early 2009. It then tried to get a time extension for meeting the EU standards, but the request was denied.
The commission judged that London did not have any real plans for cleaning up the air and would not be able to reduce pollution by the time the exemption period expired in 2011.
But a spokesperson for the Mayor of London commented: "'The government made a submission to the European Commission last year seeking additional time to meet limit values.
"Since then the mayor has published an air quality strategy and the government has re-submitted additional information to the commission.
"We are therefore confident that these developments will address the concerns that triggered this legal action. London is well on track to meet and exceed these values by 2011."
The additional data was submitted by the government in May.
It has not yet received a reply - but a "final" warning instead.
Small enough to be inhaled, PM10s are emitted mainly by cars, factories and domestic heating systems.
Breathing in too much of these pollutants may lead to asthma, cardiovascular problems, lung cancer and premature death, said the commission.
Liberal Democrat London Assembly environment spokesperson Mike Tuffrey called the warning "a real wake up call to both central Government and the Mayor of London".
Murad Qureshi, the Labour Party's environment spokesman, said he did not believe London Mayor Boris Johnson was doing enough to tackle the problem.
"It's no great surprise that London is singled out as the bad boy when our mayor won't take the bold, brave action necessary to improve the air we breathe," he said.
According to the charity Environmental Protection UK, some 35,000 people die from particle pollution in the country every year - and as many as 4,300 in London alone.
"Whilst [the previous UK government] has been waiting, the health of thousands of people has suffered," said Philip Mulligan, the charity's CEO.
"We can only hope that the new government takes real action to improve the air we breathe rather than continuing to try to duck out of our commitments."
Other activists say that Mr Johnson must stop "relying on the government to act".
"By making London a safer place to walk and cycle and improving public transport, the Mayor could get people out of cars and ensure cleaner air for everyone who lives, works in or visits the capital," said Friends of the Earth's London campaigner Jenny Bates.