Britain has branded the latest compromise proposals on the European Union budget unacceptable and threatened to wield its veto to protect its widely criticised rebate from Brussels coffers.
Foreign Secretary Jack Straw said at the start of a two-day crisis summit of the 25-nation bloc that the proposal by the Luxembourg presidency to freeze Britain's annual refund at its pre-enlargement level until 2013 was "not acceptable to us".
"The rebate is fully justified and if necessary we will use the veto," he told reporters.
Britain has come under fierce pressure to relinquish some of its rebate to enable a deal on the EU's long-term budget.
German Chancellor Gerhard Schroeder, fighting to cap spending to which Germany contributes most, said there was no excuse for London's annual refund, worth €5.1 billion this year.
"There is absolutely no real justification for this rebate in view of the fact that Britain ranks 6th in terms of wealth per capita but way down in terms of (EU) payments per capita," he told parliament in Berlin.
Luxembourg offered an 11th-hour concession to Britain in a bid to clinch a budget accord that would put the Union back on track.
Blair's spokesman did not initially reject the proposal but told reporters: "What matters is the whole package. We will argue, we have argued, why the rebate is justified."
The row stems from a long dispute between France, which gains most from generous EU payments to farmers, and Britain, which won a budget rebate in 1984 since it received less than others in subsidies as far fewer Britons worked on the land.
Britain is isolated, with all 24 other members arguing it is incomparably wealthier than in 1984 and must share the costs to the EU of taking in 10 mainly poor ex-communist states in 2004.
One senior EU diplomat said Blair might prefer to wait for conservative German opposition chief Angela Merkel, tipped to win elections expected in September.
She has said Schroeder was wrong to attack the British rebate but not French subsidies.
Dutch Prime Minister Jan Peter Balkenende, ordered by his parliament to secure a cut in the country's EU contribution which is the highest per capita, said Juncker's latest offer of partial relief for the Dutch was "not good enough".