Euro-MPs rejected budget belt-tightening today and backed inflation-busting rises in EU spending for the next eight years.
British Euro-MPs joined forces to fight the plans but were outnumbered in a Strasbourg vote endorsing European Commission demands for more cash to fund EU policies.
Most MEPs backed a 6.8 per cent rise in EU spending next year and an overall increase of at least 5 per cent in the EU's long-term 2014-2020 budget, both of which are due to be agreed before the end of the year.
Last Friday Prime Minister David Cameron threatened to veto any long-term EU spending plan above an inflation-only rise - effectively a real-terms spending freeze, for both next year and the long-term EU budget.
But the Austrian leader of the Socialist MEPs Hannes Swoboda warned this afternoon:
"If Mr Cameron threatens to use his veto, he should be aware that we can do it as well. The European Parliament is much stronger than Mr Cameron".
British MEPs were outnumbered almost five to one in today's vote, with the leader of the Tory contingent, Richard Ashworth insisting: "We believe the EU simply must stop spending money its member states do not have.
"It is plain wrong to impose austerity regimes on Greece and Spain at the same time as trying to increase spending and borrowing across Europe as a whole. That amounts to economic illiteracy.
"Fortunately the last word on this will be at the Council of the EU, (November summit) where Britain has a right of veto. You can be sure there will be some hard bargaining to come."
Glenis Willmott, Leader of the Labour MEPs, said: "In a time of crisis, when public authorities across the EU are cutting vital services, it seems that for Brussels it's still business as usual," she continued.
"The priority right now is to cut waste, go for growth and deliver a real term freeze in the budget."
Liberal Democrat MEP George Lyon said: "It is vital that the EU budget reflects the hard financial times faced by all member states and therefore we want to see a more realistic budget that reflects the realities faced by ordinary people."
As MEPs were voting in Strasbourg, Foreign Secretary William Hague used a speech in Berlin to insist that the EU budget had to be "in touch with the real world."
He warned: "People simply do not understand why there should be massive increases in the EU budget when all EU countries are trying to balance the books at home."
But Bulgarian MEP Ivailo Kalfin, the Socialist Group negotiator on the budget, insisted increases were the right thing:
"The EU budget is different from national budgets. The EU budget is an investment tool to support long-term development and strategic European co-operation. In fact 94% of the EU budget is invested in the member states to create a European added value or in making sure the EU speaks with one voice on the world stage.
"It gives additional instruments to the member states and the regions that are crucial in times of austerity."Reuse content