(adds European Commission statement)

By Silvia Aloisi and Paul Taylor

ROME/BRUSSELS, March 27 (Reuters) - Italy told the European Commission on Thursday it had not exported any mozzarella cheese contaminated with cancer-causing dioxin but was ordered by Brussels to take more urgent action or risk a trade ban.

Seeking to avert a major food scare, Italian officials played down health risks for the public after checks found higher than permitted levels of dioxin at nearly one in five producers of mozzarella made from buffalo milk.

All 83 dairy farms in the Campania region supplying the affected mozzarella makers have been sealed off while tests are carried out to determine where the contaminated milk came from.

"There is no dioxin scare in Campania," Agriculture Minister Paolo De Castro said, eating bite-sized pieces of cheese for the cameras and blaming the scare on a "media frenzy".

"The checks have revealed a limited number of cases, 83 out of 1,900 (dairy farms), and the produce has been seized, so there is no health risk," he told reporters.

In Brussels, after a deadline expired for Italy to give complete information on the mozzarella scare, the European Commission said steps taken so far in Italy to stop dioxin-contaminated cheese entering EU markets were not enough.

In a statement, the Commission said no recall of potentially contaminated products had been carried out and the surveillance programme on farms in the Campania region was insufficient.

"Therefore, the Commission has requested the Italian competent authority to take further urgent measures," it said.

"If it considers this further action as inadequate, the Commission will consider proposing safeguard measures for dairy products originating from the region of Campania," it said.

Safeguard measures would usually mean a ban on trade.

CONSUMER FEARS

Earlier, a consumer group advised Italians not to eat the cheese until the final results of the tests and the names of the producers concerned are made public. A leading group of producers said sales were down 30 percent in the first two months of the year, with a revenue loss of 30 million euros.

Italian health officials believe the dioxin levels are linked to a recent garbage crisis in Naples and the surrounding Campania region.

With dumps in the area full, locals burned piles of rubbish in the streets and in open fields. Health officials say industrial waste was also set ablaze, spreading fumes that in some cases contained dioxin, a toxic chemical.

Japan and South Korea have halted imports of buffalo mozzarella, one of Italy's best-known culinary products, over concerns about contamination.

Italian officials have declined to specify how much, if any, of the tainted mozzarella had gone onto the domestic market, but said dioxin was only dangerous in large quantities.

"Even if a small part ended on the market, there would be no risk to public safety because the present levels of dioxin are not high," Health Ministry undersecretary Gianpaolo Patta told Reuters.

Roberto Fanelli, a dioxin expert at the Mario Negri Institute of Pharmaceutical Research, told Corriere della Sera newspaper that the contaminated mozzarella was not dangerous unless it was eaten in large quantities over several months.

"The alarm is exaggerated," he said. (additional reporting by Massimiliano Di Giorgio, Jeremy Smith in Brussels; Editing by Alison Williams)

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