By James Vicini

WASHINGTON (Reuters) - The Supreme Court said on Monday that it would decide whether a federal law making it a crime to lie about being awarded a military medal or decoration violated free-speech rights.

The justices agreed to review a federal appeals court ruling that struck down the "Stolen Valor Act" passed by Congress in 2006 because the law went too far in infringing on constitutional freedom-of-speech protections.

The law targets individuals who falsely claim, verbally or in writing, they won a military decoration or medal. Violators can face up to six months in prison, or up to one year if elite awards, including the Medal of Honor, are involved.

Appeals court judges who struck down the law said that if lying about a medal can be classified a crime, so can lying about one's age or finances on Facebook or falsely telling one's mother one does not smoke, drink, have sex or speed.

The Supreme Court said it would hear an Obama administration appeal defending the law as constitutional and arguing it served an important role of protecting the integrity of the nation's military honors system.

The case involves Xavier Alvarez, who was elected to a California water board in Pomona. He introduced himself at a board meeting in 2007 and said he was a retired Marine who won the Medal of Honor, the nation's highest military decoration.

Alvarez, described in court documents as a congenital liar, never received the award and never served in the military.

The FBI got a recording of the meeting and Alvarez became the first person charged under the law in 2007. He pleaded guilty and was sentenced to pay a $5,000 fine and perform more than 400 hours of community service at a veterans hospital.

He then challenged the law for violating his free-speech rights.

By a 2-1 vote, a U.S. appeals court based in San Francisco threw out his conviction and ruled the government cannot bar speech simply because it was factually false. It noted the misrepresentations caused no harm or danger.

U.S. Solicitor General Donald Verrilli appealed to the Supreme Court. He said the law prohibited only a narrow category of knowingly made false factual claims, lies that steal the honor and prestige associated with military medals.

Jonathan Libby, a deputy federal public defender in Los Angeles who represented Alvarez, urged the Supreme Court to reject the appeal because the question did not involve broad importance and the appeals court simply applied settled law.

He said Alvarez made his false claim introducing himself as an elected officer at a political event, a water district meeting, and was unconstitutionally punished for political speech.

Legislation has been introduced in the U.S. House of Representatives in May to amend the law and make misrepresentations about receiving a medal or decoration a crime only if there had been intent to profit.

The Supreme Court is expected to hear arguments in the case early next year, with a ruling likely by the end of June.

The Supreme Court case is United States v. Xavier Alvarez, No. 11-210.

(Reporting by James Vicini, Editing by Paul Simao)