Glenn Greenwald, American journalist who first published the documents leaked by former NSA contractor Edward Snowden, testifies in front of the Brazilian Federal Senate's Parliamentary Inquiry Committee, established to investigate allegations of spying by United States on Brazil, in Brasilia October 9, 2013. REUTERS/Ueslei Marcelino

By Naomi O'Leary

ROME (Reuters) - Alleged monitoring of Italian telecommunications by U.S. and British intelligence is "inconceivable and unacceptable", Prime Minister Enrico Letta said on Thursday.

He was speaking after a weekly magazine, L'Espresso, reported that telecoms surveillance by the two close allies had targeted the government and companies, as well as suspected terrorist groups.

Revelations from former U.S. intelligence contractor Edward Snowden about the scale of interception by the U.S. National Security Agency (NSA) are fuelling growing anger among Washington's European partners.

The issue was set to dominate a meeting of European Union leaders after German Chancellor Angela Merkel called U.S. President Barack Obama to protest at reports, judged credible by Berlin, that her mobile phone had been bugged.

Asked about L'Espresso's report as he arrived at the summit in Brussels, Letta told reporters: "It is inconceivable and unacceptable that there should be acts of espionage of this type."

U.S. Secretary of State John Kerry told Letta on Wednesday that the United States was working to "find the right balance between protecting the security and privacy of our citizens" and that consultations with partners including Italy would continue.

Apart from the alleged NSA surveillance, L'Espresso said a separate programme dubbed Tempora and run by Britain's Government Communications Headquarters (GCHQ) spied on telephone, Internet and email traffic carried through three undersea fibre-optic cables in Sicily.

It said among areas of interest to the British was advanced military technology, which could include legitimate Italian trade deals with Arab countries.

The report said Italian intelligence services had knowledge of the information collected by the British under an information-sharing agreement, but gave no details. No comment was immediately available from Italian intelligence officials.

On Wednesday, the Italian state secretary with responsibility for security services told a parliamentary committee there was reasonable certainty that communications between Italian citizens in Italy had not been monitored.

Giacomo Stucchi, head of the Italian Parliamentary Committee for the Intelligence and Security Services and for State Secret Control (Copasir) told online daily affariitaliani.it that he did not believe Italian prime ministers had been bugged.

(Additional reporting by Francesco Guarascio in Brussels; Editing by Mark Trevelyan)