The European Commission will today tell the Government to change the system of funding RTÉ, which is currently incompatible with EU rules on state aid.

A 50-page letter from the Competition Commissioner, Ms Neelie Kroes, will call on the Government to draw up a precise legal definition of RTÉ's public service remit.

It will demand that State funding to RTÉ through the licence fee should be made more transparent by giving an independent monitoring body the power to analyse and assess all funding to the station.

Ms Kroes will also call on the Government to create a mechanism to ensure that RTÉ's public funding does not exceed what is necessary for the fulfilment of the public service remit.

Because the system of state funding for RTÉ predates Ireland's membership of the Common Market, the Government is not obliged to recover any money already paid to the broadcaster. It must, however, take steps to create a new system that is compatible with EU rules.

Commission sources stressed yesterday that the responsibility for remedying the situation lay firmly with the Government.

The Government has wide discretion in defining RTÉ's public service remit, although the Commission can intervene if the definition is manifestly too broad.

In a communication on public service broadcasting in 2001, the Commission said it was legitimate for a public broadcasting mandate to aim at "a balanced and varied programming, capable of preserving a certain level of audience for public broadcasters, and, thus, of ensuring the accomplishment of the mandate, ie the fulfilment of the democratic, social and cultural needs of the society and the guaranteeing of pluralism".

The Commission, which will send similar letters to Germany and the Netherlands today, said that its primary concern was to ensure transparency in state funding of broadcasting.

It wants accounts to make clear exactly how RTÉ uses licence fee funds. Public funding for the broadcaster must be limited to what is necessary to fulfil the public service remit, so that RTÉ cannot use extra public funds to gain an advantage over its rivals.

Commission sources said that under EU rules the licence fee could still be used to help RTÉ to develop its online presence, but could not finance commercial enterprises on the internet.

The Government has one month to outline the steps it intends to take to bring RTÉ's funding into line with EU rules.