* EU regulators accuse some countries of inaction
* Seven countries face legal cases
* Germany, Britain reject criticism
* European car industry: tmsnrt.rs/2fyO3za (Repeats to add link to GRAPHIC. Adds UK government reaction)
By Alissa de Carbonnel
BRUSSELS, Dec 8 (Reuters) - The European Union began legal action on Thursday against Germany, Britain and five other member states for failing to police emissions test cheating by carmakers after the Volkswagen diesel scandal.
Amid mounting frustration in Brussels over what EU officials see as governments colluding with the powerful car industry, the European Commission is wielding its biggest available stick in an attempt to force nations to clamp down on diesel cars spewing health-harming nitrogen oxide (NOx) pollution.
German officials - who say EU law is poorly framed - had expected Brussels to stop short of confronting the EU's leading power and by far its biggest car manufacturer, at a time when the unity of the bloc is being challenged by eurosceptics and Britain's vote to leave.
Thursday's action is a sign that the EU executive, under pressure from the European Parliament, is keen to prove its worth to voters.
Germany, Britain, Spain and Luxembourg stand accused of failing to impose the kind of penalties Volkswagen has faced in the United States over its use of illegal "defeat device" software to mask real-world NOx emissions blamed for respiratory illnesses and early deaths.
Reacting to the announcement, German Transport Minister Alexander Dobrindt said: "Germany is the only European country to have implemented a comprehensive list of measures to prevent unauthorised use of defeat devices."
Britain enacted legislation to tackle emissions test manipulations in 2009, a spokesman for its transport ministry said. "The UK will be responding in the strongest possible terms (to the EU action)," he added.
Officials from Spain and Luxembourg could not be reached for comment.
The Commission also accuses Berlin and London of refusing to share the details of suspicious findings revealed by national investigations into the "dieselgate" scandal - without which it cannot carry out a supervisory role.
"This goes far beyond Volkswagen," said an EU source, adding that officials had more cases planned in a push to force cars spewing up to five times legal NOx limits off the road.
Thursday's notice is the first step in what is known as infringement procedures, allowing the EU to ensure the bloc's 28 nations abide by agreed EU-wide regulations. Member states have two months to respond.
If they fail to do so convincingly, the EU may take them to the EU court in Luxembourg.
In a system the Commission is now seeking to overhaul, national watchdogs approve new cars and alone have the power to police manufacturers - though once approved in one country, vehicles can be sold across the bloc.
Highlighting the system's shortcomings, the Commission said another three countries - the Czech Republic, Lithuania and Greece - do not have provisions in national law allowing for fines against carmakers in case of breaches.
European consumer lobby BEUC hailed the cases, saying not enough had been done to protect EU citizens - a year since the United States caught VW cheating and went on to win compensation for its consumers. "It is a strong rebuke of Germany and other countries' inaction," said BEUC head Monique Goyens.
But the Commission faces a tough fight. Its proposal for a shake-up of rules on new car approvals has been watered down by member states, documents seen by Reuters show.
So far, despite probes revealing that several carmakers use questionable techniques resulting in lower emissions during regulatory tests, no country has issued heavy penalties.
"All of them are still protecting their national interest," said Bas Eickhout, a Green member of the European Parliament.
Defeat devices have been illegal under EU law since 2007. But EU carmakers - who employ some 12 million people in the bloc - say they are not doing anything wrong because there is an exemption allowing them to turn off emission control systems when necessary for safety or to protect engines.
Germany has said the widely exploited loophole is the result of poorly framed EU law. However, it has asked the Commission to mediate in its dispute with Fiat Chrysler, accused in Germany of using an illegal device to scale back emission controls after 22 minutes - just longer than official tests.
Europe's Industry Commissioner Elzbieta Bienkowska has repeatedly said the letter of EU law is clear and called on member states to respect its spirit.
Writing by Alissa de Carbonnel; Additional reporting Jan Schwartz in Hamburg and Costas Pitas in London; Editing by Mark Potter and Laurence Frost