FW Capital, a subsidiary of Finance Wales, wants to manage part of a Â£400m fund for firms in the north of England.
Plaid Cymru's Shadow Economy Secretary Adam Price was critical, claiming it could boost Welsh companies' rivals.
But FW Capital said any profit it makes in England would help cover Finance Wales's overheads back in Wales.
The firm has had a team of fund managers operating from offices in the north west and north east of England since 2010.
Finance Wales said its board and management in Cardiff were fully aware of FW Capital's decision to bid for a slice of the Northern Powerhouse work, for which it has been shortlisted.
Mr Price said it was "perplexing to say the least that this practice [of work outside Wales] is continuing", following a Welsh Government review in 2013.
"The whole purpose of creating this lever, this additional bit of institutional fire power, is to give Welsh businesses a competitive advantage," he added.
"If you're doing the same on the other side of the border you're potentially negating your work in Wales."
The 2013 review by business expert Prof Dylan Jones-Evans questioned whether Finance Wales was doing enough to help the Welsh economy, and recommended the creation of a development bank.
Ministers have pledged to set one up, and Finance Wales has submitted plans.
Despite Prof Jones-Evans's criticism, the assembly's finance committee approved FW Capital's work in England in a separate report in 2014, saying Wales benefited from the profit it generated.
Finance Wales chief executive Giles Thorley said the group's priority "is and will always be supporting businesses in Wales".
He said FW Capital was run "on a profitable basis by local fund managers" and "brings valuable management fees to the Finance Wales Group making a sizeable contribution to central overheads in Wales".
"We're looking forward to working with Welsh Government on the plans to become a Development Bank for Wales," he said.
"Our focus remains on helping businesses in Wales to grow and succeed," Mr Thorley said.
A Welsh government-owned investment company has defended a decision to compete for business as part of England's Northern Powerhouse.