* Relocation plan to respond to emergency in Italy, Greece

* Additional resettlement plan for 20,000 migrants

* Quota system has proven controversial

By Francesco Guarascio

BRUSSELS, May 22 (Reuters) - The European Commission is set to propose next week that 40,000 asylum seekers who have arrived by boat in Italy and Greece should be relocated across the continent in response to what it considers an emergency situation in both countries.

The proposal, revealed to Reuters by an EU source familiar with a draft, follows plans announced last week for the European Union to take in 20,000 asylum-seekers currently living outside the bloc.

The Commission has also set a quota system, based on a country's size and economic health, for those resettled migrants as well as for those relocated within the EU.

The EU measure is due to be finalised on Wednesday and would need majority support from EU nations expecting to take in some of the migrants.

The deaths of hundreds or thousands of migrants, largely from Africa, attempting to cross the Mediterranean in often flimsy boats has raised calls for coordinated policy to cope with the influx and stem the flow.

The Commission had not provided the number of proposed relocations. The 40,000 figure could have been set to guarantee acceptance after some EU states, notably France, had initially baulked at the idea of opening their doors to migrants.

The term "quotas" has been latched onto by anti-immigration groups as a sign that refugees are being imposed on France from outside.

Last year, there were 600,000 asylum claims in the European Union.

According to the United Nations refugee agency at the start of May, some 60,000 migrants have sought to enter Europe by sea so far this year, more than half to Italy, fleeing war and poverty in Asia, Africa and the Middle East.

The EU measure to be proposed next week is based on an article of the Lisbon Treaty regarding the functioning of the EU.

It says that the EU members may adopt provisional measures if one or more states are confronted by an emergency situation caused by the sudden inflow of nationals from outside the bloc.

Britain, Ireland and Denmark, which have exemptions on matters concerning asylum, immigration, visas and border controls, would not be expected to vote. (Reporting by Francesco Guarascio, writing by Philip Blenkinsop; editing by Ralph Boulton)