MasterCard has a large chunk of the European card market.

The Commission said that the fees unfairly inflated retailers' costs when shoppers used cards in foreign nations.

And it warned that if Mastercard did not get rid of the fees within six months, then it would levy daily fines worth up to 3.5% of global turnover.

European consumers make about �1 trillion of card payments each year.

Consumers foot the bill, as they risk paying twice for payment cards Neelie Kroes Competition commissioner

The fees - known as multilateral interchange fees - apply to both MasterCard credit cards and Maestro debit cards and range from 0.4% to 1.2% of a transaction.

MasterCard is expected to appeal the ruling.

It has previously said that the fees play a vital role in facilitating transactions.

'Inflated prices'

Competition commissioner Neelie Kroes said that the fees make it more expensive for retailers to accept cards and that these costs would inevitably be passed on to customers.

"Consumers foot the bill, as they risk paying twice for payment cards - once through annual fees to their bank and a second time through inflated retail prices paid not only by cards users but also by customers paying cash," she said.

Ms Kroes added she "sincerely" hoped that Mastercard would not offset money lost because of the ruling by increasing prices elsewhere.

MasterCard has clearly been abusing its position to bolster its bottom line and retailers and their customers are bearing the cost Kevin Hawkins British Retail Consortium

It is estimated that about 40% of all payment cards in the EU feature either Mastercard or Maestro logos.

Ms Kroes said that other credit card companies should also take note of the Commission's behaviour towards Mastercard and act accordingly.

And she said that a probe into fees charged by Mastercard's rival Visa would reopen in 2008.

The British Retail Consortium welcomed the decision, saying that the fees cost retailers hundreds of millions of pounds each year.

"MasterCard has clearly been abusing its position to bolster its bottom line and retailers and their customers are bearing the cost," BRC director general Kevin Hawkins said.