UPDATE 2-UK, Malta dig in heels over EU gaming initiative

(Adds industry reaction)

By Huw Jones

BRUSSELS, Dec 1 (Reuters) - Britain and Malta teamed up on Monday in a bid to head off moves by EU president France to forge a bloc-wide policy for regulating the multi-billion euro gambling industry.

France put forward a discussion paper to a meeting of the bloc's 27 industry ministers that said there were "already grounds for seeking a common approach."

In the past, gambling could be dealt with nationally, but the rise of cross-border online betting undermines this.

"The common challenges identified would appear to justify the development of a new EU-level approach," the document, obtained by Reuters, said.

EU Internal Market Commissioner Charlie McCreevy told the meeting he had not proposed common EU rules on gambling as no consensus existed among the bloc's states.

That stalemate was much in evidence on Monday.

The issue is politically sensitive, as it touches on important tax revenue and traditions in many countries. Online gaming firms are battling many governments as they face barriers to operating freely in some countries.

The Czech Republic, which takes over the EU presidency on Jan. 1, signaled it may continue the debate but avoided giving any clear commitment, diplomats said.

"They left the door open to discussing the issue in the future despite strong opposition from Britain and Malta," a diplomat who attended the meeting said.

The two countries, known for their liberal attitude to gaming firms, intervened to say gambling should remain a national competence, the diplomat said.

The European Court of Justice has ruled several times that restrictions on gaming must be non-discriminatory and proportionate, and McCreevy has launched legal actions against about 10 EU states to uphold these rulings.

Many of the countries subject to the legal actions backed the French paper, triggering accusations from some officials that it was no more than a delaying tactic and an attempt to impose stricter rules on some countries.

"Malta said the French initiative is a cul de sac," a second EU official said.

Britain's chapter of the European Gaming and Betting Association (EGBA), which represents private operators, said measures promoted by France on Monday, such as a blocking of financial transactions or a ceiling on a player's rate of return, had already been rejected by the European Commission.

"The EGBA can only approve the European Commission's commitment as guardian of the EC treaty to combat national protectionist legislations and to ensure the respect of the rights of EU regulated operators to fair market access throughout Europe," the EGBA said in a statement.

European Lotteries, which represents state-owned gaming operators, said "contrary to what commercial gambling operators keep on claiming, this council initiative is actively and strongly supported by at least a dozen member states and by no means a merely French initiative." (Editing by Simon Jessop and Rupert Winchester)