Grand finalists Sydney Roosters have reportedly threatened to sue the National Rugby League over the salary cap, arguing that it breaches national competition laws.

The Sunday Telegraph said it had obtained a letter sent to the NRL in which lawyers acting for the Roosters said the team would be forced to take legal action in the Federal Court if the NRL failed to increase the salary cap for 2005.

The paper said that if successful, the legal action could end the $3.25 million salary cap, threatening the viability of smaller clubs.

The cap limits how much clubs can pay their top 25 players.

It's championed by the NRL as a means of providing a better competition by spreading the talent across the clubs.

NRL chief executive David Gallop told the Sunday Telegraph that the league would defend any action, calling the salary cap "the foundation stone of the game's success".

The Roosters have long been critical of the NRL's ceiling-payment system.

"We've had eight players in two years who wanted to stay forced out of the club by the salary cap - it's a disincentive to success," Roosters coaching director Phil Gould said in August.

"The game is being administered to suit the lower-placed clubs. Any rule that forced players like Brad Fittler and Luke Ricketson to take pay cuts to stay in the game has to be looked at."

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