Any industry agreement on the flow of online traffic such as the one struck between Verizon Communications Inc and Google Inc must preserve a free and open Internet, the top U.S. communications regulator said on Thursday.

Federal Communications Commission Chairman Julius Genachowski, speaking to reporters, declined to comment on the deal between the giant phone and Internet companies over a set of Internet traffic principles, called net neutrality.

But in response to a question about the agreement, which might impinge on the concept of treating all Internet traffic equally, he said: Any outcome, any deal that doesn't preserve the freedom and openness of the Internet for consumers and entrepreneurs will be unacceptable.

Under the deal, Verizon would not block or slow Internet traffic over land lines, but could do so to wireless devices, one source told Reuters on Wednesday.

In disputing a New York Times article, a Verizon spokesman denied that the deal represents a business arrangement between the two companies.

The agreement comes among a series of closed-door meetings at the FCC involving the two companies, AT&T Inc and other Internet companies to set rules for the industry.

According to several people who have been briefed on the FCC meetings, no consensus is imminent and Congress is unlikely to pass any such agreed-upon framework in a bill in this session.

The FCC talks continue, but we understand significant differences remain, said Rebecca Arbogast, an analyst with Stifel Nicolaus, who added that the Verizon-Google deal could fracture alliances and break down the FCC talks.

The FCC voted in June to collect public comments on whether the agency should reclassify broadband regulation under existing phone rules -- typically considered a stricter regulatory regime.

The FCC vote came after a U.S. appeals court ruled that the agency lacked authority to stop cable television company Comcast Corp from blocking bandwidth-hogging applications.

Our sense is a Verizon-Google agreement in itself would not provide enough substantive network neutrality safeguards or political cover for ... Genachowski to back off reclassification, Arbogast said.

But it could still be helpful to the chairman's search for a middle ground if it creates some momentum or at least buys him some time, she said.

Verizon and Google have not formally announced the deal, and it is not known if the other stakeholders would find it an acceptable framework for their businesses.

AT&T said it is not a party to a deal between Google and Verizon.

Verizon and Google have worked closely in the wireless device area. Verizon Wireless, a venture between Verizon Communications and Vodafone Group Plc, depends heavily on phones based on Google's Android software for growth.

(Editing by Leslie Gevirtz and Gerald E. McCormick)