iPhone won't allow me to delete purchased music. How do I delete it - it's consuming all iPhone gigs!

I downloaded the new iTunes 11 this morning. Although I manage music manually, somehow every song ever purchased from iTunes was automatically uploaded to my device (iphone). However, this had consumed all available space and I want to delete most of it. But I don't see how I can as the songs do not appear in the "on the iPod" list when connected to iTunes.

Please tell me how to delete this!!!