The accusations involving the Italian auto giant come in the wake of the Volkswagen “dieselgate” scandal, revealed in 2015, that affected 11 million cars.
The European Commission, the EU's executive arm, says Italian authorities ignored the presence of so called “defeat devices” in Fiat autos that enable cars to minimize pollution levels during tests.
Italy follows Germany, Britain and five other member states challenged by the Commission in December for turning a blind eye to emissions cheating.
“The Commission decided today to send a letter of formal notice asking Italy to respond to concerns about insufficient action taken regarding the emission control strategies employed by Fiat Chrysler Automobiles group (FCA),” a statement said.
The notice is the first step in the EU's infringement procedure that ensures the bloc's 28 member states abide by EU-wide regulations.
Ahead of the widely expected decision, Italian Transport Minister Graziano Delrio said he found the action “particularly disappointing.”
Delrio firmly denied that any cheating by Fiat took place and maintained that his services could provide evidence to clear Italy of any wrongdoing.
Under current EU law, infringement proceedings remain the Commission's only tool to fight auto makers in the wake of the scandal.
Day-to-day regulation of the auto sector, including approving new car models for the road, remains under the authority of national governments.
Last year, the Commission proposed an overhaul of rules on how vehicles are licensed and tested across the EU, but has faced resistance from member states and European Parliament.