Faced with the possible loss of millions of euros in European Union aid, Bulgaria is drafting amendments which could send anyone convicted of stealing EU money to jail for 20 years, a senior official said.

The EU's executive has frozen some 500 million euros ($773.9 million) in pre-accession funds due to graft investigations into the handling of EU payments by Bulgarian agencies and warned Sofia to step up reforms by mid-June or face further sanctions.

An EU source told Reuters last week Sofia stood to lose the frozen funds and was to face stricter auditing on nearly 11 billion euros in EU money it is due to receive by 2013.

Deputy Finance Minister Dimitar Ivanovski told a news conference the country was taking steps to address the problem, admitting that at the moment "there is not enough stringency in the penalty code".

Bulgaria, which joined the bloc last year, is drafting amendments which envisage up to 20 years in prison for misappropriation and fraud involving EU aid.

"We are also proposing this measure, so that it is clear to the society and the European Commission that the government has undertaken all steps to incriminate such activities," said Ivanovski, who is the national EU funds authorising officer.

The Socialist-led government has appointed a dedicated deputy prime minister to monitor and control the funds and is trying to step up stalled reforms ahead of a July EU report, which will assess its progress and may recommend sanctions.

The Balkan country has drafted scores of action plans and repeatedly pledged to root our graft and crime but has not charged any senior officials with corruption and has failed to put notorious crime bosses behind bars.

Brussels' biggest concern is the suspected nexus of a political "Old Guard" rooted in the pre-1989 Communist era, Russian business interests and organised crime, an EU source in Brussels said yesterday.