By Foo Yun Chee

BRUSSELS (Reuters) -Alphabet's Google may have to sell part of its lucrative adtech business to address concerns about anti-competitive practices, EU regulators said on Wednesday, threatening the company with its harshest regulatory penalty to date.

The European Commission set out its charges in a statement of objections to Google two years after opening an investigation into behaviours such as favouring its own advertising services, which could also lead to a fine of as much as 10% of Google's annual global turnover.

The stakes are higher for Google in this latest clash with regulators as it concerns the company's biggest money maker, with the adtech business accounting for 79% of total revenue last year.

Its 2022 advertising revenue, including from search services, Gmail, Google Play, Google Maps, YouTube adverts, Google Ad Manager, AdMob and AdSense, amounted to $224.5 billion.

EU antitrust chief Margrethe Vestager said Google may have to sell part of its adtech business because a behavioural remedy is unlikely to be effective at stopping the anti-competitive practices.

"For instance, Google could divest its sell-side tools, DFP and AdX. By doing so, we would put an end to the conflicts of interest," she told a news conference.

"Of course I know this is a strong statement but it is a reflection of the nature of the markets, how they function and also why a behavioural commitment seemed to be out of the question."

Google said it disagreed with the Commission's charge.

"The Commission's investigation focuses on a narrow aspect of our advertising business and is not new. We disagree with the EC's view," Dan Taylor, Google's vice-president of global ads, said in a statement.

Vestager said investigations would continue into Google's introduction of a privacy sandbox set of tools to block third party cookies on its Chrome browser and its plan to stop making the advertising identifier available to third parties on Android smartphones.

She said the EU had closely cooperated with competition authorities in the United States and the UK.

The European Publishers Council, which filed a complaint to the Commission last year, welcomed the charge.

The Commission said Google favours its own online display advertising technology services to the detriment of competing providers of advertising technology services, advertisers and online publishers.

It said Google has abused its dominance since 2014 by favouring its own ad exchange AdX in the ad selection auction by its dominant publisher ad server DFP, and also by favouring AdX in the way its ad buying tools Google Ads and DV360 place bids on ad exchanges.

Google is the world's dominant digital advertising platform with a 28% market share of global ad revenue, according to research firm Insider Intelligence.

Google had sought to settle the case three months after the investigation was opened but regulators grew frustrated with the slow pace and the lack of substantial concessions, a person familiar with the matter told Reuters previously.

(Reporting by Foo Yun Chee, additional reporting by Sudip Kar-Gupta;Editing by Philip Blenkinsop, Sudip Kar-Gupta, Kirsten Donovan)