UPDATE 1-Pirelli chairman probed in spy case-source

* Inquiry into illegal use of phone data between 1997-2004

* Tronchetti Provera has denied wrongdoing (Adds lawyer reaction, background)

MILAN Nov 24 (Reuters) - The chairman of Pirelli , Marco Tronchetti Provera, is under investigation as part of a long-running probe into alleged use of Telecom Italia data to snoop on Italy's elite, a judicial source said on Thursday.

Milan prosecutors are investigating Tronchetti Provera, one of Italy's top businessmen, for suspected international corruption and for allegedly receiving stolen phone data, the source said.

Tronchetti Provera's lawyer, Roberto Rampioni, confirmed in an e-mailed statement that the businessman was questioned by Milan magistrates on Thursday.

But he said that Tronchetti Provera and Telecom Italia, which he led as chairman from 2001 to 2006, had reported the suspected abuse to the authorities and had seen their reputations damaged in the case.

The case first emerged in 2006, when employees at Telecom Italia and then-parent Pirelli & C SpA were arrested on allegations that they used phone data to spy into people's private lives and for industrial espionage.

Prosecutors accuse a group led by the former Telecom Italia security chief Giuliano Tavaroli of creating thousands of files from 1997 to 2004 on people ranging from former Prime Minister Romano Prodi to soccer player Christian Vieri.

Tronchetti Provera, who had been heard as a witness in the case, has said he was not aware of any illegal activities involving his former security chief.

Tavaroli and 15 others have received jail sentences for charges including conspiracy of corruption and revealing professional secrets. Another 12 people are standing trial in Milan.

Telecom Italia and Pirelli have agreed to pay a total of 7 million euros to settle a criminal investigation into their roles in the case, freeing the companies from lengthy court proceedings. (Reporting By Manuela D'Alessandro; Writing by Antonella Ciancio and Silvia Aloisi; Editing by Helen Massy-Beresford)