Echelon eavesdrops on international communications
The tentacles of the Echelon network stretch so far that the UK's involvement could constitute a breach of human rights, they say.
The Euro-MPs have been studying Echelon for almost a year, after allegations that it has been used by the US to commit industrial espionage against European firms.
They conclude that Echelon - whose existence is not officially acknowledged - is reading millions of e-mails and faxes sent every day by ordinary people.
The system, which also eavesdrops on telephone calls, was set up after World War II and was used to glean vital information in the Cold War.
But the committee says ordinary individuals and companies are now being spied on, and they should routinely encode their e-mails and faxes if they want them to remain private.
Sending an unencrypted e-mail, they say, is like posting a letter without an envelope.
The report says the UK could fall foul of the European Human Rights Convention, which guarantees privacy to all individuals.
Satellite communications
The European Commission is now expected to study the MEPs' report, to decide whether to take action against the UK over the alleged breach.
However, the Echelon investigation did not prove all the claims made about the spy system.
The network's scope was rather less extensive than had been claimed, the MEPs found, as it was limited largely to communications transmitted by satellite rather than cable.
The committee also failed to prove that the US had used it to damage European commercial interests.
But the network certainly existed, the MEPs said, and its primary purpose is to intercept private and commercial communications, not military intelligence.
Out of the shadows
The US has denied the system even exists, and the UK refuses to give details, except to say that communications interception is a vital tool in the fight against "dangers to society".
The Echelon operation is based at Fort Meade in Maryland, America, and at the UK's spy centre, GCHQ in Cheltenham.
It remained a shadowy system until an ex-director of the American CIA told French newspaper Le Figaro that it was being used to track electronic messages sent by European companies.
He insisted that the intelligence services' motivation was to check for corruption and sanctions-busting, rather than set about industrial espionage.