The European Parliament has voted to scrap a controversial agreement to allow US authorities access to EU banking data transmitted over the international Swift network.
European Union ministers in November agreed an interim nine-month deal to continue letting US anti-terror investigators access details of bank transfers conducted over Swift.
The agreement was hurriedly signed by EU interior ministers just before the Lisbon Treaty entered into force on 1 December in order to avoid parliamentary objections.
The decision to overturn the agreement follows intense US lobbying ahead of Thursday's vote.
In a weekend interview with German magazine Spiegel, Adam Szubin, the US treasury department official in charge of the Terrorist Finance Tracking Program, said that US tapping of Swift banking data had helped to identify and break-up a number of potentially deadly terrorist cells operating in Europe. He warned of serious diplomatic consequences, as well as security gaps, if Parliament were to veto the programme.
However Parliamentarians were unconvinced by the appeals, expressing concerns that the deal failed to protect the privacy of EU citizens.
In the final vote, political leaders in Strasbourg voted 378-196 against the deal, with 31 abstentions.
The leader of the Socialist group, Martin Schulz MEP, said: "We want a new and better deal with proper safeguards for people's privacy."
The European Commission said it will need to explore with the US treasury department the extent to which there is scope to negotiate a long term EU-US TFTP agreement.
Commissioner for Home Affairs, Cecilia Malmström states: "I remain convinced that the programme enhances the security of our citizens: it would be the role of the Commission to make sure that all the relevant safeguards for EU citizens' privacy and data protection are duly included in any possible future agreement. In spite of this set back, I hope we will be able to agree a text in the near future that will give us greater security, more data protection and a useful cooperation tool with US authorities.
"Following today's vote in the European Parliament, we will have now to reflect together with our US partners on the possible negotiation of a new agreement".