* Supreme Court pushes govt to decide on law to try sailors
* Maritime security law carries death penalty
* Case threatens to sour ties with both Italy and EU
By Shyamantha Asokan
NEW DELHI, Feb 3 (Reuters) - India's top court has given the government a week to decide if it will invoke a maritime security law that carries the death sentence against two Italian marines accused of killing two Indian fishermen.
If India's government decides to use the legislation, it would go against its earlier assurances that the men would not face the gallows, seriously testing New Delhi's ties with both Rome and the European Union.
The sailors, part of a military security team protecting a cargo ship, say they mistook the fishermen for pirates and fired warning shots into the water during the incident in February 2012, off the coast of the southern state of Kerala.
Massimiliano Latorre and Salvatore Girone are on bail but cannot leave India.
The Supreme Court ruled in January 2013 that a trial would take place in India but charges have not yet been filed, partly because of confusion regarding which law the men should be prosecuted under. The sailors deny killing anyone or aiming directly at the fishing boat.
On Monday, the Supreme Court pushed for a final decision on whether the men will be charged under the maritime security legisation - an anti-piracy and anti-terrorism act that metes out capital punishment to those who kill someone in their bid to throw a ship off course.
For the marines to be tried under this law, a government sanction is required because it is primarily an anti-terrorism law. If New Delhi decides against this move, the sailors could still be tried for murder under the regular criminal code.
Italy has opposed invoking the maritime law.
India's Home Ministry last month gave the National Investigation Agency, the country's anti-terrorism body, permission to prosecute the Italians under the law but that decision was put under review, Attorney General Goolam E Vahanvati told Reuters.
"Not even a single piece of paper has been filed," said Viplav Sharma, one of a team of defence lawyers representing Italy's government and the marines,
"Nothing has been done and it is almost two years. Our main demand is that they should be allowed to go home."
President Giorgio Napolitano last week called India's handling of the case "contradictory and confusing". Prime Minister Enrico Letta has enlisted the European Union, which opposes the death penalty, to pile pressure on India.
"Any decision on the case may have an impact on overall European Union-India relations and will be assessed carefully," European Commission President Jose Manuel Barroso told a news conference last week, following a meeting with Letta.
Another sore point between the two countries is a scrapped 560-million-euro helicopter contract between India and AgustaWestland, a unit of Italy's state-owned and cash-strapped defence giant Finmeccanica.
India cancelled the contract on New Year's Day over accusations that AgustaWestland executives paid bribes to land the deal, charges the company denies. The two parties have agreed to arbitration over the deal. (Editing by Frank Jack Daniel and Alison Williams)