By Ethan Bilby

BRUSSELS, June 18 (Reuters) - The European Union is failing to ensure that hundreds of millions of euros in aid to Egypt is used effectively and to make the Islamist government tackle corruption and human rights abuses, a European Court of Auditors report said on Tuesday.

The Luxembourg-based agency said the 1 billion euro ($1.3 billion) package for Egypt from 2007 to 2013 was funnelled primarily into the state budget, despite graft and a lack of transparency in public spending.

Management of the support did not improve after a 2011 overhaul of EU aid policy - introduced after the Arab Spring pro-democracy revolts - that said funds should be more closely tied to progress in democratic reforms.

EU institutions responsible for aid - the executive European Commission and the diplomatic service - have failed to substantially link cash to results, the auditors said.

"They have not yet translated (the reform of aid policy rules) into significant changes in support toEgypt," the auditors said.

Instead, aid is still not being spent on effective anti-corruption programmes and there is no additional oversight over how budget support funds are used.

A government spokesman was not immediately available for comment.

EU foreign policy chief Catherine Ashton, who heads the European External Action Service (EEAS), and European Enlargement Commissioner Stefan Fule, said in a letter to the ECA the report was unfairly negative.

A spokesman for the Commission said some programmes had to be maintained because they funded basic services for citizens, particularly after the uprising that ousted President Hosni Mubarak left the economy in tatters.

"Public services like health and education, reaching out to the poorest," Peter Stano told a regular briefing in Brussels.

But the auditors said putting cash into the Egyptian budget meant the EU could not control which programmes were funded, because large sectors of the economy were kept off the books.

"You don't find amounts for the huge expenditure of the military. You find a special fund of 4 billion euros of which no one knows what it's meant for, where the money comes from, where the money goes to," said ECA member Karel Pinxten. ($1 = 0.7492 euros) (Editing by Justyna Pawlak and David Cowell)