During a fierce clash with William Hague during Prime Minister's Questions, Mr Blair insisted the proposed savings tax would not be "imposed by Brussels" and he would wield the British veto if necessary.
He pledged that the Government would not agree to "anything that damages the Eurobond market" in the City of London, where up to 10,000 jobs could be at risk under the plan to stop residents of one EU country holding savings tax-free in other member states.
"There will be no agreement," he said. "We will win the argument. That is the difference between Labour's approach and that of the previous Tory administration, which led to isolation, division and failure."
Mr Hague accused Gordon Brown, the Chancellor, of backing down over the savings tax at a meeting of EU finance ministers on Tuesday. He told Mr Blair: "Instead of negotiating an EU directive on savings taxation, which includes the withholding tax and threatens thousands of jobs in this country, shouldn't we be making clear that all such directives are unacceptable to this country? The whole idea should have been vetoed at the beginning."
Mr Blair said Britain was prepared to block the tax. He said: "I've made it clear here and I make it clear again: we will use the veto if necessary. But it is better to win the argument. And the reason it is better to win the argument is that there are many other issues on which we will require support from other countries.
"The choice is very simple. We can have isolation, division and failure with the Tories, or constructive engagement, partnership and success under Labour."
To Labour jeers, Mr Hague told the Prime Minister it was "time the Government showed the way on taxes in Europe and instead of all the rubbish in the European socialist manifesto about harmful tax competition, that you have signed, shouldn't we be celebrating tax competition, extending the tax advantages of this country and widening the gap in taxes."
He urged Mr Blair to end "all the evasions and secrecies and half truths" on tax harmonisation and publish the list of the so-called 200 common tax proposals, which were discovered on the Internet last week.
But Mr Blair said: "There are no 200 hidden measures just as we have not given up the veto, just as we have not agreed a withholding tax."
t Francis Maude, the shadow Chancellor, renewed the Tory attack over Europe in a speech in the City last night. He said that retaining the pound was the country's "best bet" and branded the Government's drive to join the single currency a "national suicide mission".
Tonight Mr Blair will stress his pro-EU credentials by speaking at a rally in Paris with Massimo D'Alema, Lionel Jospin and Gerhard Schroder, the leaders of Italy, France and Germany.Reuse content