* Another EU case looming over changes to courts
* Thousands protest in Warsaw against law
* Punishment could lead to hefty fines (Adds comments from Kaczynski, Zia-Zarifi)
By Gabriela Baczynska and Lidia Kelly
BRUSSELS/WARSAW, July 19 (Reuters) - The European Union on Wednesday gave Warsaw a week to halt judicial reforms it said would put courts under direct government control, or face punishment for undermining democracy in the largest ex-communist member of the bloc.
Since being elected in 2015, the nationalist Law and Justice (PiS) party has tightened government control over courts and prosecutors, as well as state media.
Political opponents, rights groups and the EU say it undermines separation of power between the executive and the judiciary. While PiS remains broadly popular among Poles, thousands have been protesting daily against the plans.
"These laws considerably increase the systemic threats to the rule of law," the EU executive arm's deputy head, Frans Timmermans, told a briefing in Brussels.
"They would abolish any remaining judicial independence and put the judiciary under full political control of the government."
Jaroslaw Kaczynski, chairman of PiS and Poland's paramount leader, said the warning from the European Commission was political and the EU should not be meddling in the matter.
"Those matters that we are dealing with right now belong exclusively to the jurisdiction of the country, so what we have here is an abuse (of their powers)," Kaczynski told the state television TVP.
"It's simply an action that has a political character."
Konrad Szymanski, Poland's deputy foreign minister in charge of European affairs, said Warsaw would defend its position, including before Europe's highest court, if necessary.
The separation of powers between executive and judiciary is a fundamental democratic principle in the EU, though in many member states the effectiveness of separation can be as much a matter of political culture as of formal structures.
PiS says the reforms are needed to make the courts accountable and ensure that state institutions serve all Poles, not just the "elites" it says are the support base for the opposition.
Poland's parliament held a second day of debate on Wednesday on a proposed law to give the government more direct control over the Supreme Court, whose tasks include validating elections in the ex-communist state.
That bill follows a law passed last week which ends the terms of current members of the National Council of the Judiciary, one of the main judicial bodies, and gives parliament powers to choose 15 of its 25 members.
The chairman of the largest faction in the European Parliament, Germany's Manfred Weber, said on Wednesday: "It goes beyond doubt now: PiS government is trying to abolish rule of law in Poland. This has to be stopped."
Increasingly worried with how PiS - which combines a staunchly conservative world view with a left-wing economic agenda - is centralising power, the European Commission has opened a raft of proceedings against Warsaw, including an unprecedented probe into threats to the rule of law.
Timmermans said Brussels would open a fresh legal case next week over the court laws, as well as giving Warsaw more recommendations on how to rein in the changes.
He mentioned the "nuclear option" of triggering a punishment procedure that could theoretically lead to suspending Poland's voting rights in the bloc.
"We are coming very close to triggering Article 7," Timmermans said, although he signalled this was less likely to happen next week.
It would mean that, while the Commission has long said PiS government policies put the rule of law in the country of 38 million people under systemic threat, it would now ask member states to officially confirm that assessment.
A majority of EU states would have to agree and then tell Poland how they think it should act to address the concerns.
Only if they decide Warsaw did not heed their calls could they move to imposing sanctions. This would need the unanimity of all other EU states. Warsaw's eurosceptic, nationalist ally Hungary has made clear it would block such a move.
Legal cases could eventually lead to hefty fines, although they are usually a lengthy and slow-brewing process.
The bloc's EU affairs ministers are due to discuss the matter at their next meeting, now scheduled on Sept.19.
Despite the pressure, PiS has offered no concessions, instead presenting the criticism as unacceptable foreign meddling in domestic affairs of the country, which overthrew communism in 1989 and joined the EU in 2004. Its popularity also stems from record-low unemployment, a robust economy and increased social spending. Its eurosceptic backers revel in clashes with Brussels.
"This is a very serious problem for Europe in terms of how it handles internal deviation from what had seemed to be a very strong consensus and agreement on respect for the rule of law," Saman Zia-Zarifi, the head of International Commission of Jurists, a Geneva-based body which defends the rule of law.
But Timmermans, when asked if Brussels risked pushing Poland towards leaving the EU, like Britain, said: "No."
"I will do everything I can... to make sure that Poland sticks to a development that fosters the rule of law, democracy... This is the clear choice made by the Polish people when they freed themselves from the communist oppression." (Additional reporting by Elizabeth Miles in Brussels, Marcin Goettig, Pawel Sobczak and Marcin Goclowski in Warsaw, Writing by Gabriela Baczynska, Editing by Alison Williams)
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