The European Commission is planning to crackdown on what Facebook does with the personal information it stores about its users.

According to The Telegraph, the social networking site currently uses "sophisticated software to harvest information from people's activities on the social networking site" regardless of a user's privacy settings. This information is then passed on to advertisers so they can target specific markets.

However, a new EC Directive, which looks set to come into force in January, would ban this practice unless the user agrees to it beforehand.

"I call on service providers – especially social media sites – to be more transparent about how they operate. Users must know what data is collected and further processed (and) for what purposes," said Viviane Reding, the vice president of European Commission.

"Consumers in Europe should see their data strongly protected, regardless of the EU country they live in and regardless of the country in which companies which process their personal data are established."

If Facebook does not comply with this directive it may face a fine or legal action, despite the fact most of its information is stored in the US.

The Telegraph said an investigation by is sister title The Sunday Telegraph revealed Facebook stores information about 'likes' and 'dislikes' a user indicates on the site, as well as details about friends, family and everything a user shares.

However, Facebook said it does not "track peoples' behaviour to serve advertising" and the data given to advertisers in anonymous.

“The Sunday Telegraph article is sensational and misrepresents both how Facebook’s advertising model works and the current advertising privacy debate across Europe. Crucially, people on Facebook have given consent to receive targeted advertising through our terms when they sign up to our free service – unlike other online advertising models. We have spent considerable time and effort building an ads model which allows people to see relevant targeted advertising whilst respecting their privacy," a Facebook spokesperson said.

“We are fully compliant with EU law, have our international headquarters in Dublin and unlike some other online services, we do not use tracking technology to serve adverts. Our system only provides advertisers with anonymised and aggregated information for the purpose of targeting ads. We do not share people's names with an advertiser without a person's explicit consent and we never sell personal information to third parties.”

The EU data protection working party, which includes the UK Information Commissioner, is expected to meet this week to discuss an audit of Facebook's practices, which was undertaken by the Irish data commissioner last month.

"Facebook should ensure that any data it collects should be used in the manner that its users expect," a spokesman for the UK Information Commissioner, said.

"If personal data is being passed on to a third party or used for targeted advertising then this should be made clear to the user when they sign up to the site and reinforced when users are invited to use an application."