By Jonathan Stempel

(Reuters) - A federal judge rejected Google's proposed class-action settlement with non-Gmail users who said it illegally scanned their emails to Gmail users to create targeted advertising.

In a decision on Wednesday night, U.S. District Judge Lucy Koh in San Jose, California, said it was unclear that the accord, which provided no money for plaintiffs but up to $2.2 million in fees and expenses for their lawyers, would ensure Google's compliance with federal and state privacy laws.

Koh called the proposed disclosure notice inadequate. She said this was because it did not clearly reveal any technical changes that Google would make, or that Google scans non-Gmail users' emails to create ads for Gmail users.

The judge also said the notice did not make clear that Google could still extract data for the "dual purpose" of creating targeted ads and detecting spam and malware, and then use that data once emails went into storage after being transmitted.

"In sum, based on the parties' current filings, the court cannot conclude that the settlement is fundamentally fair, adequate, and reasonable," Koh wrote.

Google, a unit of Mountain View, California-based Alphabet Inc, declined to comment.

Koh distinguished the settlement from a similar accord with Yahoo Inc that she said required more disclosures.

Michael Sobol, a partner at Lieff Cabraser Heimann & Bernstein representing the plaintiffs, in an interview said, "we will press on with the litigation, while exploring opportunities for a resolution consistent with the court's decision." He said this could include an end to the challenged scanning.

The named plaintiffs, Daniel Matera of New York and Susan Rashkis of San Francisco, had accused Google of violating the federal Electronic Communications Privacy Act and California Invasion of Privacy Act through its scanning practices.

Koh ruled six days after Google won preliminary approval from a different judge in her court of a separate $22.5 million settlement with businesses over internet ad placements.

In that case, known as Google AdWords Litigation, businesses accused Google of placing their ads in obscure places such as error pages and undeveloped websites known as parked domains, causing them to overpay for the placements.

The case is Matera v Google Inc, U.S. District Court, Northern District of California, No. 15-04062.

(Reporting by Jonathan Stempel in New York; Editing by Dan Grebler and Jonathan Oatis)