By Giulia Segreti and Mathieu Rosemain

MILAN/PARIS (Reuters) - The spat between Italy's Mediaset and media group Vivendi over a change of heart by the French broadcaster on its planned purchase of Mediaset's pay-TV, escalated on Thursday as both threatened legal action.

The two groups signed an agreement in April, which would give Vivendi full control of Mediaset's pay-TV unit Premium and hand the two companies a 3.5 percent stake in each other.

But earlier this week Vivendi backed out of the binding share-swap agreement saying it no longer wanted all of the pay-TV unit but only a 20 per cent stake. It also added it intended to acquire around 15 per cent of Mediaset shares in the next three years.

The board of the Milan-based group said it would seek damages from Vivendi and would even consider criminal action against them for their abrupt u-turn on the terms of the deal.

Mediaset, controlled by the family of former prime minister Silvio Berlusconi, said it rejected an alternative proposal Vivendi made earlier in the week, saying it was "unacceptable because it is incompatible with the binding contract."

In turn, Vivendi said it was considering suing Mediaset for defamation as its statements undermined the French group's reputation.

While Mediaset has called Vivendi's decision a surprise, Vivendi maintained that it had warned the Italian company several times privately by letter that the terms of the deal may need to be revised.

Vivendi claimed on Tuesday the new conditions it set out were due to "significant differences" it perceived in the performance of Mediaset Premium.

A source close to the matter said problems arose during further due diligences carried out by Vivendi, showing Premium was less attractive than it had initially assessed.

A separate source said that one of the due diligences found out that the pay-TV unit's business plan was "unachievable" and needed to be revised downwards in order to be "realistic".

But on Thursday Mediaset said Premium had lost 37 million euros in the second quarter of the year, in line with what it had expected, rebutting Vivendi's doubts on its performance.

Mediaset Chief Financial officer Marco Giordani said he saw improvement in the unit's performance in the second half of the year and confirmed Premium's break-even in the first part of 2017. He added Premium's costs this year would be in line with last year's.

The loss-making pay-TV has over 2 million subscribers, mostly attracted to its sports channels, and lost 85 million euros in 2015. The deal signed in April valued it at just under 800 million euros.

Vivendi's planned purchase is part of a broader strategy by the French group to create a pan-European media and content conglomerate to compete with Rupert Murdoch's Sky and video-streaming giant Netflix.

Although Giordani reminded the contract signed with Vivendi was still legally binding, he said Mediaset would be "available" for talks with Vivendi as long as the value given to Premium would not change.

A Milan-based analyst said despite the "strong and rude" tone used by Vivendi, the two groups could enter negotiations to agree on new terms to the deal.

(Additional reporting by Giancarlo Navach in Milan; Editing by Alexandra Hudson)