* Officials say dispute may delay rules by up to two years
* Row centres on whether to allow refillable e-cigarettes
* Negotiators have agreed most other elements of legislation
Disagreement over how to regulate the booming market for electronic cigarettes is holding up a deal on strict new rules governing tobacco products in the European Union, diplomats said on Monday.
In talks aimed at finalising the legislative proposals by the end of the year, the European Parliament has pushed for a light touch approach to e-cigarettes, which it regards as a less harmful alternative to smoking.
But with a lack of clear evidence on the long-term health impact of e-cigarettes, EU governments have sought more restrictive rules, saying the amounted of nicotine contained in the cigarettes should be limited.
That could threaten the continued growth of a fast-growing market that some analysts say could eclipse the $700 billion a year regular cigarette market within 10 years.
Unless negotiators can reach a compromise in two final rounds of talks this week, the row could delay by up to two years the adoption of a wider package of tough new anti-tobacco controls. They include larger health warnings on cigarette packets and a ban on menthol and other tobacco flavourings.
The alternative would be to leave e-cigarettes unregulated at EU-level as at present, leaving each government to decide individually what rules - if any - to apply.
"I don't think we will get a deal on e-cigarettes," said one EU diplomat close to the talks, who spoke on condition of anonymity as he was not authorised to talk to journalists.
The main sticking point is the parliament's demand that e-cigarettes can be sold with refillable nicotine cartridges, rather than as single-use items as demanded by member states.
Several governments, including Britain and Germany, are concerned that at the nicotine concentration level of 20 milligrams per millilitre being discussed, one 10 ml refill cartridge would contain more nicotine than a carton of 200 cigarettes.
"The parliament has said that unless refillable cartridges are allowed, it will veto the package," said another senior EU official involved in the discussions.
"So it is possible that refillable cartridges could block the entire deal."
Other elements of the proposals where governments and the parliament broadly agree include graphic new health warnings combining pictures and text that will cover 65 percent of the front and rear of cigarette packs.
There will also be a ban on menthol-flavoured cigarettes, although it will only come into effect 6 years after the rules are finalised. Vanilla and other flavours seen as particularly attractive to children will be phased out more quickly.
With agreement elsewhere, e-cigarettes are the last remaining hurdle to the adoption of draft EU tobacco rules that have been more than three years in the making, and the subject of intense lobbying by the tobacco industry and health campaigners alike.
The global market for e-cigarettes - battery-powered tubes that turn nicotine-laced liquid into vapour - was estimated at more than $2 billion last year by market consultant Euromonitor. They usually sell for about $30 to $50 each.
Big tobacco firms including Philip Morris owner Altria , British American Tobacco and Imperial Tobacco have all moved into the fast-growing market, to try to offset a decline in sales of ordinary cigarettes.
A study published in The Lancet medical journal earlier this year showed that smokers who switch to e-cigarettes are at least as likely to quit or cut down as users of nicotine patches.
Proponents say there is no evidence of any harm from using e-cigarettes, while tobacco smoking continues to kill 700,000 people in Europe each year and as many as 6 million worldwide.
But health professionals remain wary, with the World Health Organization saying that until e-cigarettes have been endorsed as safe and effective by regulators, consumers should be strongly advised not to use them.
The U.S. Food and Drug Administration is expected to release rules this month extending its "tobacco product" authority to cover e-cigarettes, which could prompt new legislation.