* EU says Germany made only partial recovery of illegal aid
* Deutsche Post says surprised by EU's move
* Initial demand was for repayment of 500 mln - 1 bln euros
* Deutsche Post has paid back 298 mln euros to Germany
* Case to be heard at European Court of Justice (Adds company and govt comment, background)
BRUSSELS/FRANKFURT, Nov 20 Deutsche Post may have to make additional repayments of state aid after the European Commission said it is taking legal action against Germany for failing to recover the full amount demanded in a regulatory ruling last year.
The Commission, tasked with ensuring a level playing field in the 28-country bloc, said in January 2012 that the high regulated prices and pension subsidies granted by Germany gave Deutsche Post an unfair advantage over rivals and that the mail and logistics company would have to repay between 500 million euros ($649 million) and 1 billion euros to German authorities.
Deutsche Post has since paid back 298 million euros and filed an appeal against the aid ruling with the European Court of Justice (ECJ), but the Commission said on Wednesday that Germany recovered aid only for commercial post, such as the sale of stamps and envelopes or direct advertising mailings, but not business-to-business parcel services.
"The Commission therefore asked Germany to recover the aid corresponding to these services. Germany repeatedly refused to do so," it said.
The case will be heard at the Luxembourg-based ECJ, Europe's highest court.
A spokesman for Deutsche Post said the company was surprised by the Commission's move because it believed that the German government had already complied with the original ruling.
He said that Deutsche Post is not obligated to make a further payment, while the Commission said that appeals against its ruling would not suspend the recovery of aid.
A German government spokeswoman said on Wednesday that it had filed a complaint against the EU state aid decision of January 2012 and that no agreement has yet been reached with the EU over the exact amount that needed to be paid.
Deutsche Post won a small legal victory last month after the ECJ said it was asking the EU's second-highest court to review its 2011 rejection of a challenge by the company against the reopening of a state aid investigation. (Reporting by Foo Yun Chee in Brussels and Marilyn Gerlach in Frankfurt; Editing by David Goodman)