CORRECTED-UPDATE 1-White House Issues Plan to Protect Online Privacy

(Corrects 16th paragraph to show Rotenberg was referring to Obama's privacy rights statement)

* Calls for privacy bill of rights, enforcement by FTC

* Ad networks commit to "Do Not Track" technology

* Privacy experts welcome effort but wary of implementation

* State AGs send letter criticizing new Google policy

By Jasmin Melvin

WASHINGTON, Feb 23 (Reuters) - The White House on Thursday proposed a "bill of rights" that would give consumers greater online privacy protection and could eventually give the government greater powers to police Internet firms such as Google Inc and Facebook.

While the privacy bill of rights does not impose any immediate new obligations on online companies, President Barack Obama said it was part of a broader plan to give Americans more control over how their personal data was used on the Internet.

In conjunction with the announcement, advertising networks associated with Google Inc, Yahoo Inc and Microsoft Corp said they have agreed to act on "Do Not Track" technology for web browsers, something the Federal Trade Commission has been advocating since 2010.

"American consumers can't wait any longer for clear rules of the road that ensure their personal information is safe online," Obama said in a statement.

"As the Internet evolves, consumer trust is essential for the continued growth of the digital economy. That's why an online privacy Bill of Rights is so important."

Internet giants such as Google and Facebook have been accused of quietly tracking their customers' online activities and then using that data to generate advertising revenue.

A group of 36 state attorneys general sent a letter to Google on Wednesday with concerns about the search giant's plans to begin sharing users' personal information across Google products on March 1 without giving consumers an opt-in option.

"It rings hollow to call their ability to exit the Google products ecosystem a 'choice' in an Internet economy where the clear majority of all Internet users use - and frequently rely on - at least one Google product on a regular basis," the National Association of Attorneys General said in the letter.

Lawmakers have expressed an interest in cracking down on online tracking, but have done little to curtail the practice.

Internet companies have tried to get ahead of reforms by adopting privacy policies, but have still come under fire from Congress and consumer groups for not being upfront about how they use information on users' online activities.

The U.S. Commerce Department will work with companies and privacy advocates to develop "enforceable" privacy policies based on the bill of rights, said the White House.

Facebook's chief privacy officer, Erin Egan, said the social networking site looked forward to helping develop enforceable codes of conduct that would balance "the public's demand for new ways to interact and share."

The Digital Advertising Alliance, a self-regulatory body representing media and marketing trade associations, said on Thursday it would immediately begin work to add tools to browsers that consumers can use to express their preferences for data collection.

Stu Ingis, the group's general counsel, said he expected within nine months for browsers to include a simple, clear mechanism for consumers to opt-out of data collection.

The administration said it was highlighting this action by online advertisers as an example of the kind of progress that can be made through voluntary action.

Marc Rotenberg, executive director of the Electronic Privacy Information Center, called Obama's privacy rights statement "the clearest articulation of the right to privacy by a U.S. president in history.

"But there are real concerns about implementation and enforcement," he added.

Privacy advocate Jeffrey Chester cautioned against letting industry hijack the do-not-track system.

"The new... scheme will enable companies to continue to collect profiling data on users, and merely prevent the delivery of targeted ads," Chester said.

He warned against allowing these efforts to derail the Worldwide Web Consortium standards group's efforts to develop a more effective safeguard that would allow consumers to completely cut off collection of their personal information.

BILL OF RIGHTS

Obama's announcement comes as he hones his strategy for winning re-election in November. Obama is holding himself up as a champion of everday Americans who does not impede the business community's contribution to economic growth.

The planned privacy bill of rights consists of seven basic protections consumers should expect from companies.

Consumers would have control over the kind of data companies collect, companies must be transparent about data usage plans and respect the context in which it is provided and disclosed. Companies would have to ensure secure and responsible handling of the data and be accountable for strong privacy measures.

The bill of rights also calls for reasonable limits on the personal data that online companies can try to collect and retain and the ability of consumers to access and ensure the accuracy of their own data.

While companies can voluntarily choose whether to adopt these principles, those that do commit could face enforcement action for straying from the principles.

Federal Trade Commission Chairman Jon Leibowitz said a failure to meet privacy commitments once adopted could be a deceptive act or practice, warranting FTC fines or other action.

Still, he expected companies to come on board as strong privacy protections encourage trust in Internet commerce. "That in turn fuels growth of the cyber economy and all other uses of the Internet," Leibowitz said.

The FTC issued a draft privacy report in December 2010 that called for more privacy by design, choice and transparency. A final report is expected soon. (Reporting By Jasmin Melvin; Additional reporting by Diane Bartz; Editing by Michael Perry and Tim Dobbyn)