The investigation into the policy was conducted by data agencies from across the 27 European Union member states.
Among the data agencies is France's CNIL data agency, which took a lead role in a European investigation into the company.
In a statement presented to a press conference in Paris, the head of CNIL said: "Google has a few months, three or four months, to comply. If it takes no action, we will enter a phase of litigation."
In a joint letter to Google, made public ahead of the conference, the agencies wrote that the US firm "provides insufficient information to its users, especially on the purposes and the categories of data being processed.
"As a result, a Google user is unable to determine which categories of data are processed in the service he uses, and for which purpose these data are processed," it said.
The Mountain View-based internet giant maintains that its policy simplifies and unifies its policies under its umbrella services such as Gmail, YouTube, Android mobile systems, social networks as well as Internet search facilities.