Reuters International

Surveillance cameras overlook the construction site of the new headquarters of the Bundesnachrichtendienst (BND), Germany's Federal Intelligence Service in Berlin October 29, 2013. REUTERS/Tobias Schwarz

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BERLIN (Reuters) - Germany's coalition government on Friday agreed to tighten controls over the country's BND spy agency and impose new legal restrictions on its surveillance activities, according to sources familiar with the agreement.

The long-delayed reform package for Germany's Bundesnachrichtendienst, or BND, was agreed during a meeting at the German chancellor's office on Friday, according to several participants in the meeting.

The legal reforms, which must still be finalised by the German parliament, would ban the BND from spying on countries in the European Union and its citizens, as well as EU institutions, except in the case of suspected terrorist activity.

The agreement also requires the head of the BND, the chancellor's office and an independent panel of judges to approve strategic foreign espionage activities based on keyword lists, according to the sources.The changes would also spell out more clearly when the agency would be permitted to carry out such spying activities.

The BND intelligence service has been in the limelight after a series of scandals that embarrassed German Chancellor Angela Merkel, including revelations that the agency had helped the U.S. National Security Agency (NSA) spy on European allies, using such lists of keywords.

That news sparked public outrage in a country suspicious of surveillance because of the excesses of Nazi and Communist secret police in its past, and triggered the reform drive.

In April, Gerhard Schindler, who has run the BND since 2012, abruptly left his post two years earlier than planned, amid reports that he was forced out over disagreements about the reform effort.

News of the agreement came a day after three Syrians were arrested on suspicion of planning attacks in Dusseldorf.

German authorities are on heightened alert about possible large-scale attacks by Islamist militants after the bombings in Brussels in March and Paris in November.

Those events also raised questions about how European intelligence agencies cooperate with each other.

The new reform measures are to be debated by the German cabinet before the parliament's summer break, which usually begins in July, according to the sources.

(Reporting by Thorsten Severin; Writing by Andrea Shalal; Editing by Toni Reinhold)

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