London Mayor Boris Johnson today stepped up the pressure on David Cameron over Europe after Britain suffered a bruising defeat in talks to cap bankers' bonuses.
The Prime Minister said he would "look carefully" at the agreement struck at overnight talks in Brussels which limits bonus payments across the EU to, at most, twice bankers' annual salaries.
He insisted that it must be implemented in a way which took account of the special position of the City of London as a global financial centre.
However the plan was vehemently denounced by Mr Johnson who warned it would play into the hands of London's overseas rivals while undermining support in Britain for the EU.
"People will wonder why we stay in the EU if it persists in such transparently self-defeating policies," he said.
"Brussels cannot control the global market for banking talent. Brussels cannot set pay for bankers around the world.
"The most this measure can hope to achieve is a boost for Zurich and Singapore and New York at the expense of a struggling EU.
"This is possibly the most deluded measure to come from Europe since Diocletian tried to fix the price of groceries across the Roman Empire."
The new regulations - agreed by MEPs, the European Commission and EU ambassadors - will come into force at the start of next year, unless they are blocked by the member states.
Under the terms of the deal, bankers' bonuses will be limited to a maximum of one year's base salary, or twice the salary if a large majority of shareholders agree.
The bonus cap is part of a sweeping financial reform package - including the introduction of higher capital requirements for banks - intended to prevent a repeat of the financial crash of 2008.
The UK has been battling to stop the so-called "Basel III" accord, fearing it would undermine the competitiveness of the City and drive business abroad.
The deal will now be considered by EU finance ministers (Ecofin) meeting next week in Brussels - although Britain will be unable to use its veto as it is subject to qualified majority voting.
Mr Cameron, attending a summit of northern European states in Latvia, said the Government would now consider what action to take at those talks.
"We have major international banks that are based in the UK but have branches and activities all over all the world," he said.
"We need to make sure that legislation put in place in Brussels is flexible enough to allow those banks to continue competing and succeeding while being located in the UK.
"So we will look carefully at what the outcome of the negotiations was before working out the approach we will take at Ecofin next week."
Conservative MEP Vicky Ford, one of the European Parliament's lead negotiators from the Conservatives and Reformists group, insisted there were "many positive elements" in the package.
"Overall it is a good deal for almost everyone in the UK, despite the caps on a few bankers' bonuses," she said.
"If the bonus cap is shown to cause bankers to begin relocating outside the EU then we will have the ability to swiftly look again at the provisions in place through an early review."
Labour MEP Arlene McCarthy said: "It's a shame that the UK Government has sought to defend the broken bankers' bonus culture by acting as the trade union for a minority of highly paid traders."
Ireland's Finance Minister Michael Noonan, who led the negotiations for the 27 governments, said: "This overhaul of EU banking rules will make sure that banks in the future have enough capital, both in terms of quality and quantity, to withstand shocks.
"This will ensure that taxpayers across Europe are protected into the future."
The Prime Minister's spokesman said the Government would continue to raise its "real concerns" about the regulation in the run up to the Ecofin meeting of finance ministers in Europe next week.
"We do continue to have real concerns about them and we will be continuing to discuss them with EU partners in the coming days ahead of the Ecofin.
He denied suggestions that the Government believes banks should be allowed to award limitless bonuses.
"I wouldn't accept that characterisation whatsoever," he told a regular Westminster briefing.
"People can be in no doubt about the nature of the measures the Government has already taken on banking remuneration, deferred payments, clawback."
He added: "One of the things that we have been pointing out as a potential consequence of this type of approach is if you cap variable pay, bonuses, you can see big increases in basic pay and basic pay is not subject to clawback because it is paid out straightaway."
UK Independence Party spokesman Godfrey Bloom said the attack on banker bonuses would hurt ordinary workers.
"This move is the European Parliament getting the boot into bankers for a bit of political pleasure, but it is totally misguided.
"It may give the EU a dirty satisfaction to punish financial people it hates, but this agreement just hurts ordinary workers and the economy in general.
"On a point of principle, It should be the shareholders of the banks who decide how much their employees get paid, not the EU. Where will this practice end up if applied across the board?"
Mr Bloom added: "This EU action will drive more ambitious banking talent outside of the EU thus further hurting the City of London.
" It also illustrates how weak and supine the British government really is in defending the interests of a vital British industry. If Osborne does not veto this at the next Ministers of Finance meeting, he might as well hoist up the white flag now, and kick bankers out of London himself."