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The European Union has taken a "big step forward" in dealing with its budget, Prime Minister David Cameron has said.

He told MPs the intervention of the UK and its allies meant the EU now faced a choice between a 2.9% increase or nothing at all.

This would render the European Parliament's vote for a 6% budget rise impossible to implement, he added.

But Labour accused Mr Cameron of "ludicrous grandstanding on Europe".

Following last week's EU summit in Brussels, the prime minister said he had "succeeded spectacularly" in seeing off a potential 6% budget increase.

But opponents argue this is untrue, as he had wanted the 2011 budget frozen before agreeing to the 2.9% rise that will cost the UK an extra £450m a year.

In his statement to MPs on Monday, the prime minister said EU leaders were now left with a choice between accepting this figure or creating a "deadlock" which would see the 2011 remaining at the same level as the pervious year's.

The government would be "perfectly happy" if talks stalled and the latter scenario occurred, he added.

EU leaders had agreed that the institution's budget must "reflect" the spending cuts made by member states and this principle would extend to the funding framework for 2015 to 2020, Mr Cameron said.

He also said that, in discussions with German Chancellor Angela Merkel, they had agreed to take forward joint work over EU budget transparency on salaries, allowances and grants.

But Labour leader Ed Miliband said the prime minister had given "an interesting version of events", arguing that the 2.9% figure had been "put forward by the Council of Ministers and 20 countries for that and Britain was not one of them".

He added that Mr Cameron should be "slightly sheepish" and accused him of "chutzpah".