* EU expands scope of sanctions to allow it to target firms
* But companies must be linked to annexation of Crimea
* Little appetite in EU for far-reaching measures
By Justyna Pawlak and Tom Körkemeier
BRUSSELS, May 8 European Union governments have laid the groundwork for possible sanctions against Russian companies, including energy giants, over Ukraine, but diplomats say there is little appetite for now to impose any far-reaching measures.
Senior EU diplomats reached a preliminary agreement late on Wednesday to expand the legal criteria for imposing sanctions on Russia, with the goal of making it easier to freeze the assets of companies involved in the Ukraine crisis.
Decisions on which companies to target could come as soon as Monday, but EU officials stressed the scope of new sanctions would be limited to firms or entities, if any, that were linked to Russia's annexation of the Ukrainian peninsula of Crimea.
"It is related to Crimea ... to what we have witnessed there," a senior EU official told reporters.
The EU has so far imposed asset freezes and visa bans on 48 Russians and Ukrainians over Moscow's annexation of Crimea, but the United States has taken tougher measures.
Pro-Russian separatists have taken over parts of eastern Ukraine and plan to hold a referendum on Sunday on breaking away from Kiev. Yet despite the turmoil, the EU is not yet prepared to move to hard-hitting trade or financial sanctions on Russia, of the kind its leaders threatened in March to impose if Moscow took further steps to destabilise the situation.
With Western companies reporting trouble in their Russian operations this week due to the Ukraine crisis, many EU governments are reluctant to impose tough sanctions that could lead to Russian retaliation and damage their own economies.
They are also wary of antagonizing a major supplier of energy to the EU.
Nevertheless, another EU diplomat said the expansion in the scope of the EU's sanctions was significant.
"It's an important line to cross. It is the EU being willing to impact companies ... with wider economic repercussions. It is not, however, wholesale economic sanctions against Russia," the diplomat said, speaking on condition of anonymity.
Another EU diplomat said that, in theory, the bloc's 28 governments could use the new legal rules to freeze assets of powerful energy firms such as Gazprom but only if it could be proven it was involved in Crimea.
"Theoretically, it is possible that companies like Gazprom are targeted," the diplomat said, speaking on condition of anonymity. "At this stage it is unlikely that the EU puts Gazprom on the sanctions list."
Specifically, the new rules establish that the EU could target entities in Crimea "whose ownership has been transferred contrary to Ukrainian law, or legal persons, entities or bodies which have benefited from such a transfer", according to a text quoted by EU diplomats.
Until now, EU rules only allowed the targeting of Russian companies if they were clearly linked to an individual also facing sanctions. That will change when EU foreign ministers formally approve the new criteria on Monday.
"It could impact a lot of large Russian businesses if that's the road the EU wanted to go down," one diplomat said.
But he added the ministers who are due to decide on new sanctions targets may want to return to the subject in a few weeks, and only pick a small number of people or companies on Monday.
The new criteria expand the scope of the EU's measures to permit sanctions not only against those deemed responsible for undermining Ukraine's territorial integrity, in line with previous rules, but also against those who threaten the country's stability.
EU governments are anxious to maintain clear legal rules on sanctions because of a slew of legal challenges by Iranian and Syrian officials and companies in recent years, which have undermined sanctions on those countries. (Additional reporting by Adrian Croft; Editing by Mark Trevelyan)