Investigators have called for a criminal probe to be opened into officials at Bulgaria's interior ministry for alleged "abuse of power".
The European Anti-Fraud Office (OLAF) accused it of using EU money to purchase 350 new all-terrain vehicles for the police.
OLAF said Bulgaria had "violated the terms" of the grant by buying second-hand sport utility vehicles (SUVs) instead.
It called for the European Commission to recover around €5.95 million.
"The Bulgarian Ministry of the Interior breached the terms of its grant agreement by using EU money to buy SUVs from older stocks instead of new all-terrain police cars," the agency said in a statement.
"We have recommended the recovery of nearly €6 million in European funds and that criminal proceedings could be considered against officials."
OLAF first launched an investigation in July 2018 after allegations of fraud and misappropriation of subsidies were made by the European Internal Security Fund.
The Bulgarian public prosecutor's office has been urged to open a criminal investigation for "abuse of power for the benefit of a third party" against ministry officials.
EU and national authorities can examine OLAF's findings before deciding to follow up on the agency's recommendations.
"Manipulated tenders allowing potential fraudsters to line their own pockets at the expense of citizens is a typical fraud pattern seen by OLAF’s investigators all too often," said Ville Itälä, OLAF's Director-General.
"It is all the more worrying when such a vital public service as the police could have been the victim of this sort of activity, and I urge the Bulgarian Prosecutor’s Office to give proper consideration to our recommendation of legal action," Itälä added.
"This would send a clear message that nobody is above the law and that OLAF and its partners across Europe will continue to work tirelessly to protect European taxpayers’ money."
It comes after protests erupted in Bulgaria last summer over alleged government corruption.
Protesters called for Prime Minister Boyko Borissov’s centre-right government and Chief Prosecutor Ivan Geshev to resign over allegations they allowed an oligarchic mafia to seize control of the Balkan country.
They also say they are fed up with the ruling style of Borissov, who has been at the helm of three consecutive governments since 2009.