The Electoral Commission says it has concerns about the way the Forward Wales Party is fielding candidates for May's Welsh assembly elections.
Mr Davies will stand in his former Caerphilly constituency
The Commission told BBC Wales' Maniffesto candidates standing as independents could "confuse voters".
Last week, former Welsh Secretary Ron Davies announced he will stand as an independent despite being a prominent member of Forward Wales.
Responding, Mr Davies said the commission was "stuck in a time warp".
Mr Davies, who was Labour MP for Caerphilly between 1983 and 2001, last week announced his intention to stand as an independent for his old constituency.
Mr Davies has been a member of the Forward Wales party since leaving Labour in 2004.
However, he said he was not standing under his new party's banner because of the "party political pantomime down in Cardiff Bay" and changes to the assembly electoral system introduced last year.
Under election rules, if a party wins a traditional constituency seat, it has less chance of winning a regional seat.
But the formula does not apply for independent candidates.
Mr Davies said: "It is certainly the case that the Labour Party has attempted to rig the electoral process and prevent small parties to be able to make a breakthrough.
"If we were to stand here in Caerphilly as Forward Wales and in South East Wales as Forward Wales, and I were successful in Caerphilly, my running mate Colin Hobbs, wouldn't be successful in South East Wales."
Following Mr Davies' announcement, the Electoral Commission, which regulates all UK elections, said it had concerns about the tactic.
Heulyn Gwyn of the commission said: "The commission is concerned about this development because the primary concern for the commission is that of the voters.
"We want to ensure that voters understand the system, and such a tactic could cause confusion for voters and mislead voters.
"Secondly, such a tactic could be perceived as seeking to take advantage of the electoral system as it currently operates.
"The commission is well aware of the issue - we will be evaluating developments as they progress over the coming months."
Mr Davies reacted angrily to the Electoral Commission's concerns.
He told BBC Wales there was nothing wrong with what Forward Wales was doing.
Mr Davies said: "The Electoral Commission is stuck in a time warp."