Yahoo's decision to scan clients' email accounts at the behest of the US authorities has prompted questions in Europe as to whether EU citizens' data had been compromised.
It's speculated the move could derail a new trans-Atlantic data sharing deal.
Reuters reported that Yahoo complied with a classified US government demand to search customers' incoming emails for specific information provided by US intelligence officials.
Ireland's Data Protection Commissioner, the lead European regulator on privacy issues for Yahoo, said it was making enquiries about the matter.
European politicians called on the European Commission to look into the issue and lawyers said a legal challenge to the new EU-US data sharing deal, agreed earlier this year, was now more likely in Europe.
"Any form of mass surveillance infringing on the fundamental privacy rights of EU citizens would be viewed as a matter of considerable concern," the office of the Data Protection Commissioner said in a statement.
Yahoo said in response to the original Reuters story that it was "a law abiding company, and complies with the laws of the United States".
It declined to confirm whether it scanned users emails or to say if Europeans' emails were intercepted as part of the programme.
In addition to retail users in Europe, Yahoo also provides email services for other companies including UK listed groups Sky Plc and BT Plc.
Sky did not respond to a request for comment. When asked about the mater, BT referred to Yahoo's comment about being a law abiding group.
In February, the United States and Europe published a new deal to allow US companies to move data on EU clients to the United States.
Some European politicians have criticised the deal, saying it does not offer enough protection against mass surveillance by US intelligence agencies.