BRUSSELS, Sept 17, 2008 (AFP) - EU regulators gave the greenlight Wednesday to Greek plans to privatise Olympic Airlines and Olympic Airways, but said 850 million euros (1.2 billion dollars) of state aid to its cash-strapped national carrier broke European rules.

'It is my conviction that a new air transport market in Greece undistorted by state aid can develop,' said European Transport Commissioner Antonio Tajani, announcing the decision.

The EU Commission concluded that, since its last decision on the issue in 2005, that the 'Greek flag-carrier Olympic Airways Services and Olympic Airlines have received further state aid estimated at more than 850 million euros'.

This money was found to be 'incompatible with community law' and must therefore be returned, according to the EU executive.