Allegations that American intelligence agencies spied on its missions in Washington and New York "throws a shadow" over relations between the European Union and the United States, the European Commission has said.
Addressing MEP's in the European Parliament on Wednesday afternoon, justice commission Viviane Reding suggested the allegations could put the potential trade deal between Brussels and Washington at risk.
"It throws a shadow on the mutual trust which is indispensable in the relations between partners and allies," she said. "There needs to be confidence, there needs to be clarity among the negotiating partners."
"The message is clear - the fact that the programmes are said to be related to national security does not mean that anything goes."
The French and German governments have also reacted with fury to a report in Germany's Der Spiegel which alleged the American National Security Agency (NSA) had been spying on EU offices.
The information is believed to have been supplied by whistleblower Edward Snowden who leaked a series of documents to The Guardian and The Washington Post detailing the NSA's surveillance programme.
Reding told MEP's that she had also written to William Hague to protest about allegations Britain's GCHQ spy agency has been running an extensive internet survellience programme codenamed Tempora.
"Privacy is a fundamental right and it as such not negotiable," she said. "The debate on Prism only reinforced the fact many expect Europe to set a gold standard for data protection."
Speaking during a debate in the parliament, MEPs expressed outrage at the accusations that the US has been spying on the EU's diplomatic buildings in America.
Manfred Weber, a German member of the parliament's justice committee, said European "trust has been shaken" by the claims.
"What our American friends have been up to is unacceptable, you don't spy on your friends, you don't spy en masse on citizens of friendly states," he said.
Dimitrios Droutsas, a former Greek foreign minister, said the White House needed to provide explanations to the European population on Prism. "If this information is proved true the US must immediately put an end to these practices," he said.
Addressing the planned free trade agreement, he said: "EU investments and trade agreements require respect of rights. As long as these are not being respected it's really very difficult to see the opening of discussions and negotiations towards these kind of agreements
"We cannot sacrifice everything on the altar of this, we cannot back down on the fundamental rights of EU citizens and our self respect on the altar of economics."
He said it would be a "dreadful shame" of president Obama's international reputation came to be similar to that of George W. Bush.
And Dutch MEP Sophia In't Veld ridiculed the suggestion it was necessary to bug the EU's offices for security reasons.
"Bugging the EU offices in Washington is a matter of national security?" she asked. "Blanket surveillance a matter of national security? I do not buy that anymore."
However Timothy Kirkhope, a British Conservative MEP, accused the Commission and other MEP's of "posturing" and said it was "shameful" to jeopardise the trade deal before any facts were known.
"This House seems determined to conduct a witch hunt aimed at headlines," he said. "We will not condemn the US or other states based on allegations yet to be corroborated."