(Changes source; adds comment from regulator)

July 2 (Reuters) - The British data watchdog is investigating whether Facebook Inc violated data-protection laws when it allowed researchers to conduct a psychological experiment on its users.

A Facebook spokesman acknowledged that the experiment on nearly 700,000 unwitting users in 2012 had upset users and said the company would change the way it handled research in future.

The study, to find if Facebook could alter the emotional state of users and prompt them to post either more positive or negative content, has caused a furor on social media, including Facebook itself.

"We're aware of this issue and will be speaking to Facebook, as well as liaising with the Irish data protection authority, to learn more about the circumstances," the Information Commissioner's Office (ICO) spokesman Greg Jones said in an email.

Jones said it was too early to tell exactly what part of the law Facebook may have infringed. The company's European headquarters is in Ireland.

The Commissioner's Office monitors how personal data is used and has the power to force organizations to change their policies and can levy fines of up to 500,000 pounds ($839,500).

Facebook said it would work with regulators and was changing the way it handled such cases.

"It's clear that people were upset by this study and we take responsibility for it," Facebook spokesman Matt Steinfeld said in an email.

"The study was done with appropriate protections for people's information and we are happy to answer any questions regulators may have."

The Financial Times first reported the probe. (http://on.ft.com/1iTezCj)

Internet privacy concerns shot up the agenda last year when former U.S. National Security Agency contractor Edward Snowden revealed details of mass U.S. surveillance programs involving European citizens and some heads of state.

Last week, Google Inc said it has begun removing some search results to comply with a European Union ruling upholding citizens' right to have objectionable personal information about them hidden in search engines. ($1=0.5956 British Pounds) (Reporting by Supriya Kurane in Bangalore; Editing by Gopakumar Warrier and Rodney Joyce)