By Russell Padmore
BBC Europe Business Reporter, Brussels
The technology used to profile customers is now very sophisticated
The European Union has told internet companies to make better efforts to protect information they are given by consumers, or face tougher regulation.
Consumer Affairs Commissioner Meglena Kuneva told leading e-commerce and internet search firms that standards of privacy are "not satisfactory".
"Basic consumer rights in terms of transparency, control and risk are being violated," she said.
Internet firms say they have recently taken action to protect users' data.
The technology used by internet companies to profile customers is becoming so sophisticated that more confidential personal information is being recorded than consumer watchdogs believe is necessary.
In a speech on Tuesday, Ms Kuneva warned internet giants such as Microsoft and Google that "the current situation with regard to privacy, profiling and targeting is not satisfactory".
The EU is concerned that consumers are being pressured into handing over personal data to subscribe to internet services, and that confidential information is then abused to create a profile to target the customer for sales.
Last month, the social networking site Facebook was forced to abandon a plan to change its policy towards privacy after a backlash by users.
The EU cites this as evidence that the regulators need to intervene to protect consumers.
Brussels recognises that keeping data that tracks customers' preferences is useful for marketing, but insists that consumer rights must be protected.
Ms Kuneva warned online businesses that if the EU fails to "see an adequate response", the regulator will not "shy away" from its duty to protect consumers.
"We must establish the principles of transparency, clear language, opt-in or opt-out options that are meaningful and easy to use," she said.