Luxembourg's Prime Minister Jean-Claude Juncker has bowed to pressure for an early election after his junior coalition partner blamed him for failing to curb abuses of power by the secret service.

"I will convene the government tomorrow morning at 10 a.m. and will go to the Palace to suggest snap elections to the Grand duke," Juncker told parliament.

The assembly was reviewing a report it had commissioned on the security agency's illegal bugging of politicians, purchase of cars for private use and allegations that it took payments and favours in exchange for access to local officials.

The report concluded that Juncker had limited control over the security agency despite being the responsible minister and that he failed to inform either the parliamentary committee of control or justice authorities about its operations.

Alex Bodry, president of the Socialist coalition partner, urged Juncker during the parliament session to take full political responsibility over the scandal and call an election.

Juncker, who became prime minister in 1995 and is the European Union's longest serving head of government, denied any wrongdoing. It was not immediately clear whether he would fight the next election, which must be held within three months.

"If you think that, you will have to vote," an angry Juncker said earlier, citing a newspaper article that accused him of abusing the secret service for his own and his party's benefit.

The centre-right CSV and its Socialist partner hold 39 of the 60 seats in parliament.

Wealthy Luxembourg, a major financial hub, is one of Europe's most politically stable countries. The CSV has led all but one government since World War Two.