Residents of New Jersey have filed a lawsuit against Danish renewables giant Ørsted and the state over a $1bn (€911.02m) tax break the company received for the construction of a major new offshore wind farm.

The lawsuit, filed on Thursday by two New Jersey NGO groups, Defend Brigantine Beach and Protect our Coast NJ, as well as individual residents, argues that the subsidy from the state violates the state constitution. According to the plaintiffs, the law that authorised the tax break violates a provision of the state constitution that prohibits legislation that overtly favours a private entity.

This law was signed into effect in July by Governor Phil Murphy. Murphy, whose administration has set a goal of installing 11,000MW of offshore wind by 2040, said the subsidies would help the offshore wind industry take root in the state and provide job stability to residents.

The groups called for the court to overrule the law, which they said created the tax break “for the singular purpose of protecting Ørsted from commercial risk it voluntarily assumed” when it submitted bids to develop the Ocean Wind 1 project.

According to the lawsuit, the two groups seek to “minimize or eliminate the impact of ocean-based wind turbine facilities and to minimize the cost and burden to New Jersey residents”.

The $1bn state subsidy package allows the company to keep federal tax credits that it would usually have been required to pass along to utility ratepayers, the plaintiffs argue. The subsidy was originally proposed to help the company with inflation, labour and supply chain concerns, the lawsuit said.

At the beginning of July, the Ocean Wind 1 project received federal approval from the US Department of Interior’s Bureau of Ocean Energy Management. At the time, Ørsted called the decision a “major milestone” in the federal environmental review process.

If the project goes ahead, onshore construction is expected to begin in the autumn, with offshore construction due to begin next year. The wind farm will consist of 98 turbines off the coast of Atlantic City, with an output capacity of 1.1GW. Operations are slated to begin in 2025.

Ørsted said that it does not comment on pending litigation.