David Cameron today insisted that he had genuinely sought agreement on a new treaty at last week's European Union summit.
The Prime Minister told MPs he had negotiated in "good faith" during the discussions in Brussels.
However, in a Commons statement he said that he had been forced to block a treaty of all 27 member states after they refused to agree to safeguards for the City of London.
"We went seeking a deal at 27 and I responded to the German and French proposal for treaty change in good faith, genuinely looking to reach agreement at the level of the whole of the European Union," he said.
Mr Cameron's decision to wield Britain's veto sparked fresh tensions with the Tories' Liberal Democrat coalition partners.
Lid Dem leader and Deputy Prime Minister Nick Clegg was notably absent from the chamber today.
Mr Cameron said he remained committed to Britain's membership of the European Union.
"Britain remains a full member of the European Union and the events of last week do nothing to change that," he said.
"Our membership of the EU is vital to our national interest."
The Prime Minister insisted that the safeguards he sought were "modest, reasonable and relevant" and were designed to ensure a "level playing field" for the City.
"Satisfactory safeguards were not forthcoming so I didn't agree to the treaty," he said.
"It was not the easy thing to do but it was the right thing to do."
Liberal Democrat sources said Mr Clegg had stayed away from the Commons set piece because he did not want his presence to be a distraction.
Pointing out the absence, Labour leader Ed Miliband accused the Prime Minister of ignoring the national interest to appease Conservative eurosceptic MPs.
In noisy exchanges which required several interventions from the Speaker, Mr Miliband quoted Mr Clegg several times in his dismissal of the Prime Minister's claims for the summit.
"How can you expect to persuade anyone else it's a good outcome when you can't persuade your own deputy?", he said.
It was not a veto "when the thing you wanted to stop goes ahead without you", he added.
"That's called losing, that's called being defeated, that's called letting Britain down."
He went on: "The reality is this: you have given up our seat at the table; you have exposed, not protected British business; and you have come back with a bad deal for Britain."
The Prime Minister had been "unable to point to a single proposal" in the planned Treaty that threatened Britain's financial service industry, he said.
Mr Cameron denied the safeguards he sought were because the Government was "soft" on the banks, saying ministers wanted to go further in regulating the banks than they could under existing EU rules.
The other 26 members are now set to go ahead with a new set of fiscal rules for the eurozone through an international agreement, which Britain will not be a party to.
The Prime Minister said even though Britain was not in the euro, the changes would have had consequences for the UK if they were incorporated into a treaty.
"Creating a new eurozone treaty within the existing EU treaty without proper safeguards would have changed the EU for us too," he said.
"It would have changed the nature of the EU, strengthening the eurozone without balancing measures to strengthen the single market.
"Of course an intergovernmental agreement is not without risks but we did not want to see that imbalance hardwired into the treaty without proper safeguards."
Earlier Danny Alexander, the Lib Dem Treasury Chief Secretary, insisted the coalition would not break up, despite his party's unhappiness over Mr Cameron's decision to wield the veto.
"This doesn't threaten the coalition. The coalition was formed to deal with the enormous economic problems that we inherited as a country. That task is the central task of this Government," he told BBC Radio 4's Today programme.
"It is a task that we will continue over the full five years until 2015 when there'll be another general election. That is what we have committed to do and that is what we will do. That is the right thing in the national interest."
But shadow foreign secretary Douglas Alexander sought to reach out to disillusioned Liberal Democrats, urging them to join with Labour to try to improve the outcome of the summit for Britain.
"Just because he (Mr Cameron) puts party interest before the national interest, there is no reason others should do the same," he wrote in his New Statesman blog.
"That is why I make a genuine offer to Liberal Democrats to work with us to try to get a better outcome for Britain, between now and when this agreement is likely to be finally tied down in March.
"Work can and should start immediately both to win back friends and allies and to consider what rules and procedures can avoid Britain's further marginalisation."
A spokesman for the Department for Work and Pensions said: "The changes to the welfare system will protect those who need the most help, with more support, whilst encouraging others to take responsibility for their own lives and the lives of their families. Something the JCHR support."
Pressed about Mr Clegg's whereabouts Mr Cameron told MPs: "I'm not responsible for his whereabouts."
UK Independence Party leader Nigel Farage said: "David Cameron is obviously a little confused on what he is doing over the EU. He seems to think that through his actions in Brussels, he remains at the heart of Europe.
"He even claims that 'Britain wants to be in the EU'. If he thinks that, he is more confused than I thought he was. Not a single poll in recent months agrees with him.
"If he ever spoke to the people of this country rather than the inhabitants of the Westminster and Brussels bubbles he would realise that his belief is misplaced. The result of his actions in Brussels last week put us inexorably on the path to a referendum, whether he likes it or not."
In an interview later, Mr Clegg said he did not think people "cared that much who sits where in the House of Commons".
"I would have been a distraction if I was there..." he added.
"The Prime Minister and I clearly do not agree on the outcome of the summit last week."
He insisted the coalition was "here to stay" until 2015.