* Netherlands led attempts to get tougher rules
* Green politicians say will seek to block deal
* Deal gives car industry more time and more scope to pollute (Updates with outcome of meeting)
By Barbara Lewis
BRUSSELS, Oct 28 (Reuters) - European countries reached a compromise deal on new testing rules for cars on Wednesday that allows vehicles to carry on emitting more than twice agreed pollution limits despite an outcry caused by the Volkswagen emissions scandal.
The agreement, thrashed out in extended talks, diluted a proposal from the European Commission, the EU executive, after many of the 28 member states demanded leeway to protect the car industry.
EU sources, speaking on condition of anonymity, said the Netherlands had been among a handful of countries seeking stricter rules and it alone voted against the compromise as too weak.
Before the talks that began at 10 am (0900 GMT) and finished around 3.30 pm, two hours later than planned, national position papers seen by Reuters showed deep divisions between nations.
Among those calling for more latitude for the car industry, the German government said: “the diesel engine should be preserved as a powertrain option on the mass market.” Germany also said controls on enforcement of legal limits needed to be pragmatic.
The European Commission had heaped pressure on EU governments to reach a swift deal.
Industry Commissioner Elzbieta Bienkowska said earlier on Wednesday if member states could not agree, they would dent consumer confidence and have negative consequences for the automotive industry.
The European Commission proposed “real-world” testing would become operational from next year, but would only take full effect after a two-year phase-in for new vehicles from 2017.
Initially nitrogen oxide (NOx) readings, primarily associated with diesel cars, could exceed an 80 milligramme/kilometre limit by 60 percent before falling to 20 percent.
Instead, the compromise agreed on Wednesday sets a “conformity factor” of 2.1 from late 2017, meaning cars could emit more than twice the official limit.
Two years later, it would fall to 1.5, the EU sources said, meaning vehicles could emit nitrogen oxides, associated with respiratory disease and premature death, up to 50 percent above the legal ceiling.
Volkswagen is battling the biggest business crisis in its 78-year history after admitting in September it installed software in diesel vehicles to deceive U.S. regulators about toxic emissions.
In Europe, a failure to close the gap between NOx emissions in real driving conditions compared with tests, confirmed by European Commission research, has drawn unfavourable comparisons with Washington’s track record in policing business.
Members of the European Parliament criticised the decision.
“Today’s decision on new car emission tests is contemptible,” Dutch Liberal politician Gerben-Jan Gerbrandy said.
Green politicians said they would examine a possible legal challenge.
“We will now look at all legal means to challenge this decision and will push for the European Parliament to object to the proposal,” Green environment spokesperson and vice-president Bas Eickhout said in a statement.
Environmental campaigners were also critical.
“It seems governments would rather citizens die as a result of diesel exhaust emissions than require carmakers to fit technology typically costing 100 euros,” Greg Archer, clean vehicles manager at Transport & Environment, said. (Editing by David Holmes and Jane Merriman)