* Law still needs approval from upper house, European Commission
* EU says German plans may infringe state aid rules
* Germany says will not give in to EU demands on imported power (Adds minister quote, EU objections, background)
By Annika Breidthardt and Stephen Brown
BERLIN, June 27 Germany's Bundestag lower house of parliament on Friday passed a law to reform the system of renewable energy subsidies, clearing the first hurdle for a plan that could still be stopped by the European Union following a conflict over its legality.
The law - part of Germany's efforts to wean itself off nuclear power - still needs approval from the upper house and the European Commission, which is concerned exemptions from a surcharge on green power may infringe EU state aid laws.
Berlin and the Commission have been at odds over the German policy under which consumers pay a surcharge to finance renewable energy while heavy industrial users are largely exempt.
The Commission raised new objections on Monday, which led to Germany changing its plans at the last minute.
German Economy Minister Sigmar Gabriel said he was certain whoever succeeded Joaquin Almunia as competition chief at the European Commission would show more understanding of the new German legislation.
"I'm sure we will reach an agreement in the end ... we cannot burden existing plants with 100 percent of the renewable energy surcharge," he told reporters.
PAY THE SURCHARGE
The last minute changes included a rule that industrial firms which generate their own power on site in new renewable or combined heat-power plants would pay a higher surcharge than previously planned.
But Gabriel said Germany would not give in to EU demands to exempt electricity imported from neighbouring states from the surcharge, calling the requests from Brussels "unacceptable".
The German government expects to get approval from Brussels in July, a deadline needed so that German industry can apply in time for exemptions from the green energy surcharge, a rebate the firms say they need to remain competitive internationally.
Berlin says for the population to accept the cost of shifting to renewable energy from nuclear power, the government had to ensure the protection of jobs. It says that exemptions from the surcharge have helped keep Germany competitive. (Reporting by Annika Breidthardt and Stephen Brown, additional reporting by Markus Wacket; Editing by Sophie Hares)