The CAA has instructed Ryanair to tell passengers they are entitled to be rerouted by another carrier, reimburse their expenses, and commit to helping passengers who chose an unsuitable option on the grounds of misleading information.
Ryanair has backed down and offered almost 700,000 customers with cancelled flights compensation for hotels and other expenses, as well as alternative flights with other airlines.
It comes after the CAA on Wednesday accused Ryanair of breaking European Union laws as the email it had sent customers did not sufficiently tell them about their rights.
It says it has emailed all customers affected by what it calls its 18,000 schedule changes and 2,100 flight cancellations.
All passengers affected by Ryanair flight cancellations have been issued with a clarification email (see below) by the airline which outlines their rights to refunds and their re-routing on Ryanair or on other comparable transport options and expenses.
Ryanair shares fell sharply yesterday after the crisis-hit airline was told "action, not words" was needed.
The escalation comes after weeks of trouble for Ryanair, which came under fire earlier this month for cancelling up to 50 flights a day as a result, it said, of an error with pilot holiday rosters.
Ryanair said it met with the commission on?Friday and agreed to implement measures to better inform customers of their rights and claims ahead of a deadline by Britain's Civil Aviation Authority.
The CAA has the power to seek legal undertakings from operators to make sure they comply with consumer rights law and to take court action if they fail to do so.
CAA chief executive Andrew Haines said he was "furious".
Passengers have expressed frustration with the airline, with many left out of pocket due to a lack of alternative flights and accommodation bookings they can no longer use.
It is promising over 1 million seats from £9.99, with some flights to France going as cheap as £4.99.
He added that 99 per cent of Ryanair's customers remain unaffected by the cancellations.