* Plan proposes extending warnings to 75 pct of packs
* But EU countries can go further and impose plain packaging
* Proposals include ban on flavours such as menthol
* Tobacco firm says proposals contravene EU law
By Charlie Dunmore and Claire Davenport
BRUSSELS, Dec 17 (Reuters) - The European Union's executive Commission is to propose larger health warnings on cigarette packets and a total ban on flavourings such as menthol, a draft revision of EU tobacco rules seen by Reuters showed on Monday.
The proposals stop short of forcing all cigarettes to be sold in plain packets carrying graphic health warnings, as required in Australia from the start of this month. But individual EU governments will be free to insist on such packaging if they choose to do so.
The proposed rules, which are aimed at preventing young people from taking up smoking, are likely to anger tobacco firms who fear tougher packaging rules will reduce already dwindling European sales and set a worrying precedent for growth markets in Asia and Africa.
Cigarette sales in the 27-nation EU bloc have fallen sharply in recent years but - at about 33 percent - Europe still has a higher proportion of smokers than any other region of the globe, according to data from the World Health Organization.
The Commission said tobacco was the number one cause of premature death in Europe claiming 700,000 lives every year.
The EU's draft rules have been in development for more than two years and have become the focus of intense lobbying by the tobacco industry.
They played a part in the October resignation of former EU Health Commissioner John Dalli, after one of his associates was accused of seeking bribes from "snus" producer Swedish Match in return for lifting a sales ban on the snuff-like product outside Sweden.
"The proposal foresees that combined warnings (picture plus text) of 75 percent should be displayed on both sides of the packages of tobacco products," the draft legislation - from the European Commission - said.
"However, a member state may maintain more stringent national provisions ... in areas covered by this directive, on grounds of overriding needs relating to the protection of public health," it said.
The draft rules also include plans to ban "slim" cigarettes and the sale of packets containing fewer than 20 cigarettes. They maintain existing maximum limits on the amount of tar, nicotine and carbon monoxide produced by cigarettes, and would keep the current EU sales ban on snus outside Sweden in place.
A spokeswoman for Hamburg-based Reemstma, Europe's biggest cigarette producer and a subsidiary of Imperial Tobacco, sharply criticised the draft.
"The draft (proposals) very clearly break German and European law," said Svea Schroeder.
"This is plain packaging by the back door, and by that token it is a deep intrusion into the intellectual property rights and trademark rights of the manufacturer. It destroys brand values that companies have built up over time."
EU cigarette sales totalled 576 billion last year, a fall of more than 100 billion since 2007, consultants KPMG said in a report for Philip Morris in June.
Manufactures have increasingly looked to developing Asian and African markets to compensate for falling European sales where rising incomes have led to a big increase in sales of cigarette brands such as Marlboro in recent years, making those markets a major source of revenue growth for tobacco firms.
Due be published on Wednesday, the proposals must be jointly approved by EU governments and the European Parliament before they can become law, a process that could take up to two years.
"There's going to be a long way to go once these proposals are published," said Simon Evans, a spokesman for Imperial Tobacco. "We are confident looking many years into the future that the EU will be an area where we can sustainably grow and develop our business."