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The Commission said its move was prompted by a series of complaints by UK internet users about the use of Phorm by internet service providers.

It said the legal action addresses "several problems" with the UK's implementation of EU ePrivacy and personal data protection rules, under which EU countries must ensure, among other things, the confidentiality of communications by prohibiting interception and surveillance without the user's consent.

Phorm technology works by analysing customers' web surfing to determine users' interests and then deliver targeted advertising to them.

"These problems emerged during the Commission's inquiry into the UK authorities' action in response to complaints from internet users concerning Phorm," the Commission said.

EU Telecoms Commissioner Viviane Reding said: "Technologies such as internet behavioural advertising can be useful for businesses and consumers, but they must be used in a way that complies with EU rules. These rules are there to protect the privacy of citizens and must be rigorously enforced by all member states.

"We have been following the Phorm case for some time and have concluded there are problems in the way the UK has implemented parts of EU rules on the confidentiality of communications.

"I call on the UK authorities to change their national laws and ensure that national authorities are duly empowered and have proper sanctions at their disposal to enforce EU legislation on the confidentiality of communications."

Since April 2008, the Commission said it has received several questions from UK citizens and UK members of the European Parliament concerned about the use of Phorm by UK ISPs.

The Commission has written several letters to the UK authorities since July 2008, asking how they have implemented relevant EU laws in the context of the Phorm case.

Following an analysis of the answers received, the Commission said it "has concerns there are structural problems in the way the UK has implemented EU rules ensuring the confidentiality of communications".

The UK has two months to reply to this first stage of an infringement proceeding - the letter of formal notice sent today.

If the Commission receives no reply, or if the observations presented by the UK are not satisfactory, the Commission said it may decide to issue a reasoned opinion - the second stage in an infringement proceeding.

If the UK still fails to fulfil its obligations under EU law after that, the Commission will refer the case to the European Court of Justice, which could force the UK government to change its laws, or, potentially face a fine.