In a letter to the European Commission (EC), the Scottish Executive confessed it had not acted in line with public procurement directive 92/50/EEC when appointing Catalan designer Enric Miralles to the project in 1998.
The admission - triggered by an EC investigation into the affair - opens the door for legal action by the likes of Rafael Viñoly, who was one of the runners-up in the competition.
The New York-based architect had been the clear public favourite but was edged out, along with Richard Meier and Michael Wilford, in favour of the Miralles/RMJM collaboration.
However, according to the letter (seen by Scotland's Sunday Times), the executive had not been able to guarantee this selection procedure met with EU treaty principles on fairness.
Only last month the EC revealed it was concerned about the process behind the appointment and whether 'this tender procedure violated EU rules on public procurement' and in particular that it 'notably did not respect the principles of equal treatment and transparency'.
The news has also undermined the validity of the Fraser Inquiry into the management of the massively over-budget Holyrood project, which sensationally scooped last year's Stirling Prize.
Long-term critic of the scheme, MSP Fergus Ewing of the SNP, questioned why the executive had not admitted this omission at the inquiry.
He said: 'Would this not mean that top civil servants in Scotland - from [Scottish Executive Permanent Secretary] Muir Russell downwards - misled the Fraser Inquiry?'