* British actions could break EU data privacy law - source
* Security does not mean "anything goes" - EU official
The European Union is examining whether Britain may have broken EU law after reports that it tapped international phone traffic and shared vast quantities of personal data with the United States, a European Union source said on Wednesday.
European politicians have reacted angrily to allegations of large-scale eavesdropping on private communications by Britain and the United States and allegations of U.S. spying on the EU.
Many of the allegations are based on leaks by fugitive former U.S. spy agency contractor Edward Snowden.
They are particularly sensitive for EU-member Britain because it is bound by EU laws, including strict safeguards for protecting the privacy of personal data.
The Guardian newspaper reported last month that Britain's eavesdropping agency GCHQ had tapped fibre-optic cables carrying international phone and Internet traffic and had shared vast amounts of personal data with the U.S. National Security Agency under a project codenamed "Tempora".
The EU's executive Commission "is seeking to assess whether Tempora could fall under EU law" and be a violation of EU law, an EU source said, on condition of anonymity.
Britain's activities may fall foul of the EU's Data Protection Directive, which sets strict rules on data privacy.
If the Commission considered Britain to have broken EU law, then it could start a so-called infringement procedure, the source said. This can end up with a case being referred to the European Court of Justice, which can impose fines.
A recent European Court of Justice judgment found that EU governments cannot simply argue they are not bound by EU law because they acted out of national security concerns.
EU Justice Commissioner Viviane Reding told the European Parliament in Strasbourg on Wednesday that she had asked British Foreign Secretary William Hague to clarify the scope of the programme.
"The message is clear: The fact that the programmes are said to relate to national security does not mean that anything goes. A balance needs to be struck between the policy objective pursued and the impact on fundamental rights, in particular the right to privacy," she said.
German Justice Minister Sabine Leutheusser-Schnarrenberger wrote to two British ministers last month demanding to know to what extent the British agency targeted German citizens.
Britain's GCHQ said: "GCHQ's work is carried out in accordance with a strict legal and policy framework which ensures that its activities are authorised, necessary and proportionate."