Possible FBI involvement in a high-tech Pentagon project that sifts through Americans' personal information raises new concerns about privacy and civil liberties, Sen. Charles Grassley said Tuesday.

The Defense Department's inspector general, Joseph Schmitz, told Grassley, R-Iowa, in a letter that the FBI was working on a memorandum of understanding with the Pentagon "for possible experimentation" with the data-mining project.

Disclosure of FBI contacts regarding the Total Information Awareness project "only heightens my concern about the blurring of lines between domestic law enforcement and military security efforts," said Grassley, chairman of the Senate Finance Committee and a frequent critic of the FBI.

Schmitz also told Grassley he will order an audit to help the Pentagon develop sufficient privacy safeguards that do not exist now to ensure the project has adequate protections for computer security and people's privacy.

The project, being developed by the Defense Advanced Research Projects Agency, would collect and mine huge amounts of data, including telephone records, credit card transactions, travel information and medical records. The goal of the effort, headed by retired Rear Adm. John Poindexter, is to spot clues and patterns that possibly could identify would-be terrorists.

Grassley asked Attorney General John Ashcroft for detailed information about the possible involvement of the FBI and Justice Department and those agencies' potential uses of the information.

FBI spokesman Mike Kortan said Tuesday the discussions with the Pentagon "have been limited to emerging and advanced technologies and analytical tools in support of its law enforcement and counterterrorism mission."

Kortan added that those talks have been conducted in a way "consistent with all existing guidelines and statutes."

A Justice Department official said agency sharing of intelligence, including any produced under the Pentagon project, is essential to fight the war on terror.

"We will shield Americans from violations of their civil liberties ... while we work across the government to stop terrorists from killing more innocent Americans," said Justice spokesman Mark Corallo.

The proposal has drawn sharp criticism from government watchdog groups and from some Democrats in Congress, who have proposed legislation to shut it down as a threat to Americans' privacy and civil liberties. In the aftermath of the 2001 terror attacks, the government already is using powerful new domestic wiretap and surveillance abilities.

"At a time when Americans are calling for more privacy of personal information, this program would provide a backdoor to databases of private information," said the American Civil Liberties Union, the conservative Eagle Forum and seven other watchdog groups last week in a letter to Congress.

In his letter to Ashcroft, Grassley said the FBI and Justice Department "may have been less than forthright" to the press and public about potential law enforcement uses of data collected and analyzed under the Pentagon project.

"We need to strike a balance between targeting terrorists with everything we've got and also protecting the rights and freedoms cherished by Americans," Grassley said. "Military dollars shouldn't be spent on domestic law enforcement."