Prime Minister David Cameron has said he will not campaign for Britain to leave the EU in a referendum, warning that the UK would become “a sort of greater Switzerland” if it quit the 27-nation bloc.
The PM has indicated that he may consider calling a referendum on Europe, but only after negotiating a "new settlement" with Brussels which would see powers returned to Westminster.
He told the Daily Telegraph today that quitting the EU altogether - as some of his backbenchers want - would be "a complete denial of our national interests".
His comments came as a business survey found that half of UK firms with a view on the country's future in the European Union want a "looser" relationship with Brussels.
Only 12% of members asked by the British Chambers of Commerce (BCC) said they wanted the UK to withdraw altogether, while 9% backed further integration and 26% were happy with the status quo.
But the most popular option - with 47% of votes - was that "a looser relationship should be negotiated" within the EU. With 6% unsure, that is half of expressed opinions.
Of those that backed any sort of change, 40% said they believed it should be put to a referendum within the next 12 months while another 55% favoured a national poll within five years.
Explaining why he would not vote for Britain to leave the EU, Mr Cameron said: "I think it would be bad for Britain. When I look at what is in our national interest, we are not some country that looks in on ourself or retreats from the world.
"Britain's interest - trading a vast share of our GDP - is to be in those markets. Not just buying, selling, investing, receiving investment, but also helping to write the rules. If we were outside, we wouldn't be able to do that.
"It comes back to this - who are going to be the winning nations for the 21st century? If your vision of Britain was that we should just withdraw and become a sort of greater Switzerland, I think that would be a complete denial of our national interests."
Shadow foreign secretary Douglas Alexander said: "No wonder the Conservative Party are confused this morning. It's another week, and yet another referendum policy from the Prime Minister.
"What Britain needs now is a clear strategy for Europe rather than yet more internal party manoeuvring. The more the Prime Minister says, the less clear his policy becomes."
Commenting on the business survey, BCC director general John Longworth said: "These results clearly show that British businesses do not want further integration with the EU.
"Although only a small proportion of firms hold extreme views on whether to leave or stay, nearly half of companies say they want a renegotiated, 'looser' membership within the European Union.
"Nearly four decades after Britain joined the European Community, it is astonishing that British firms seem to feel that the balance of advantage of EU membership is lessening.
"Businesses are pragmatic: they want to be part of a European single market, but only if it delivers real and open access for British goods and services."
The political establishment needs to "tread carefully and avoid rushed political decisions on the shape of Britain's future relationship with the EU", he said.
"Instead, both the Government and the Opposition should carefully consider how we can get a single market that works for business while ensuring that legislation from Brussels doesn't damage our economic prospects."
Around 7,500 BCC member businesses, selected at random from among those who responded to previous surveys about international trade and supply chains, were approached by email and 1,840 took part.