David Cameron has defended his decision to block an EU-wide treaty change to tackle the eurozone crisis, despite warnings it will leave the UK isolated.
It looks likely that all 26 other members of the European Union will instead agree to a new "accord" setting out tougher budget rules.
Labour said the UK would be left out of key decisions affecting its future.
But the PM said the UK remained a "full and very influential member" of Europe on the issues that mattered to it.
German Chancellor Angela Merkel said she "regretted" that the UK was "not able to go along the same path" as the rest of Europe. French President Nicolas Sarkozy said Mr Cameron had made "unacceptable" demands for exemptions from EU financial regulation for the City of London.
National budgets
Having failed to reach an agreement of all 27 EU members, the 17 eurozone countries and the other EU states apart from the UK are expected to sign up to the new deal, which includes:
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a commitment to "balanced budgets" for eurozone countries - defined as a structural deficit no greater than 0.5% of gross domestic product - to be written into national constitutions
automatic sanctions for any eurozone country whose deficit exceeds 3% of GDP
a requirement to submit their national budgets to the European Commission, which will have the power to request that they be revised
eurozone and other EU countries to consider, within the next 10 days, providing up to 200bn euros to the International Monetary Fund to help debt-stricken eurozone members
Mr Cameron said the abandoned treaty change involving all 27 members had been in danger of "distorting the single market".
"I think I did the right thing for Britain," he said. "We were offered a treaty that didn't have proper safeguards for Britain and I decided it was not right to sign that treaty."
'Powerful player'
He added: "This does represent a change in our relationship with Europe, but the core of our relationship - the single market, the trade, the investment, the growth, the jobs that we want to see - that remains as it was."
He said the UK was a leading European player in Nato and an important member of the single market - but was not in the eurozone or the Schengen agreement on open borders.
"I think it's right for Britain to say: 'Well, which bits of Europe most benefit us as a nation?' and to focus on those things and I'm not frightened of the fact sometimes you might not be included in some things."
He said on the "key decisions" that mattered - such as the single market and trade, Britain remained a "full and very influential member" of Europe.
The decision was welcomed by some of Mr Cameron's MPs. Mark Reckless said the PM had been "as good as his word" while Conservative Mayor of London Boris Johnson said Mr Cameron had "played a blinder".
But Labour leader Ed Miliband said the prime minister had "mishandled these negotiations spectacularly".
"It's a terrible outcome for Britain because we are going to be now excluded from key economic decisions that will affect our country in the future," he said.
Mr Miliband said Mr Cameron had not "put in the hard yards of negotiation" that were necessary to build alliances and strengthen his position.
"What I find incredible is that he simply ended the negotiations yesterday and said that was it. He could have carried on negotiating today to get a better outcome for Britain."
'Tough rules'
Mr Sarkozy said Mr Cameron's insistence on a protocol allowing London to opt out of proposed changes to the rules governing financial services was "unacceptable", because a lack of regulation was behind much of the debt crisis.
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German Chancellor Mrs Merkel said: "I didn't think David Cameron sat with us at the table.
"We had to get some sort of agreement and we couldn't make compromises, we had to meet tough rules."
UK Independence Party leader Nigel Farage said the outcome was "the worst of all worlds" for the UK, leaving the country in Europe but without power.
'Absolutely nothing'
Labour and UKIP both warned that Mr Cameron had actually secured no new safeguards for the City of London - despite stating that that was a priority.
Mr Farage said: "We finish this summit with Cameron having gained absolutely nothing, with the prospect of us repatriating powers having disappeared completely and with the City of London, that he sought to protect, now more vulnerable than it has ever been."
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I think any eurosceptic who might be rubbing their hands in glee about the outcome of the summit last night should be careful what they wish for”
Foreign Secretary William Hague said earlier that signing up to the amended EU treaty would have led to the UK handing over more national sovereignty to Brussels.
But German MEP Elmar Brok said the rules would have had "no impact" on Britain because they only applied to eurozone countries and said Britain was now "isolated and marginalised".
UK Deputy Prime Minister Nick Clegg - whose Liberal Democrat party is more pro-European than their coalition partners - said he regretted the failure to reach an agreement with all 27 EU states but said Mr Cameron had simply been seeking a "level playing field" across Europe.
But he warned eurosceptics against "rubbing their hands in glee": "Clearly there is potentially an increased risk of a two-speed Europe in which Britain's position becomes more marginalised, and in the long-run that would be bad for growth and jobs in this country."
He said Britain would now "redouble our efforts" to ensure the single market was "properly guaranteed".
However others in his party were more critical. Lib Dem peer Lord Oakeshott said: "It is a black day for Britain and Europe. We are now in the waiting room while critical decisions are being taken."
It looks likely that all 26 other members of the European Union will instead agree to a new "accord" setting out tougher budget rules.
Labour said the UK would be left out of key decisions affecting its future.
But the PM said the UK remained a "full and very influential member" of Europe on the issues that mattered to it.
German Chancellor Angela Merkel said she "regretted" that the UK was "not able to go along the same path" as the rest of Europe. French President Nicolas Sarkozy said Mr Cameron had made "unacceptable" demands for exemptions from EU financial regulation for the City of London.
National budgets
Having failed to reach an agreement of all 27 EU members, the 17 eurozone countries and the other EU states apart from the UK are expected to sign up to the new deal, which includes:
Continue reading the main story
“Start Quote
a commitment to "balanced budgets" for eurozone countries - defined as a structural deficit no greater than 0.5% of gross domestic product - to be written into national constitutions
automatic sanctions for any eurozone country whose deficit exceeds 3% of GDP
a requirement to submit their national budgets to the European Commission, which will have the power to request that they be revised
eurozone and other EU countries to consider, within the next 10 days, providing up to 200bn euros to the International Monetary Fund to help debt-stricken eurozone members
Mr Cameron said the abandoned treaty change involving all 27 members had been in danger of "distorting the single market".
"I think I did the right thing for Britain," he said. "We were offered a treaty that didn't have proper safeguards for Britain and I decided it was not right to sign that treaty."
'Powerful player'
He added: "This does represent a change in our relationship with Europe, but the core of our relationship - the single market, the trade, the investment, the growth, the jobs that we want to see - that remains as it was."
He said the UK was a leading European player in Nato and an important member of the single market - but was not in the eurozone or the Schengen agreement on open borders.
"I think it's right for Britain to say: 'Well, which bits of Europe most benefit us as a nation?' and to focus on those things and I'm not frightened of the fact sometimes you might not be included in some things."
He said on the "key decisions" that mattered - such as the single market and trade, Britain remained a "full and very influential member" of Europe.
The decision was welcomed by some of Mr Cameron's MPs. Mark Reckless said the PM had been "as good as his word" while Conservative Mayor of London Boris Johnson said Mr Cameron had "played a blinder".
But Labour leader Ed Miliband said the prime minister had "mishandled these negotiations spectacularly".
"It's a terrible outcome for Britain because we are going to be now excluded from key economic decisions that will affect our country in the future," he said.
Mr Miliband said Mr Cameron had not "put in the hard yards of negotiation" that were necessary to build alliances and strengthen his position.
"What I find incredible is that he simply ended the negotiations yesterday and said that was it. He could have carried on negotiating today to get a better outcome for Britain."
'Tough rules'
Mr Sarkozy said Mr Cameron's insistence on a protocol allowing London to opt out of proposed changes to the rules governing financial services was "unacceptable", because a lack of regulation was behind much of the debt crisis.
Continue reading the main story
“Start Quote
German Chancellor Mrs Merkel said: "I didn't think David Cameron sat with us at the table.
"We had to get some sort of agreement and we couldn't make compromises, we had to meet tough rules."
UK Independence Party leader Nigel Farage said the outcome was "the worst of all worlds" for the UK, leaving the country in Europe but without power.
'Absolutely nothing'
Labour and UKIP both warned that Mr Cameron had actually secured no new safeguards for the City of London - despite stating that that was a priority.
Mr Farage said: "We finish this summit with Cameron having gained absolutely nothing, with the prospect of us repatriating powers having disappeared completely and with the City of London, that he sought to protect, now more vulnerable than it has ever been."
Continue reading the main story
“Start Quote
I think any eurosceptic who might be rubbing their hands in glee about the outcome of the summit last night should be careful what they wish for”
Foreign Secretary William Hague said earlier that signing up to the amended EU treaty would have led to the UK handing over more national sovereignty to Brussels.
But German MEP Elmar Brok said the rules would have had "no impact" on Britain because they only applied to eurozone countries and said Britain was now "isolated and marginalised".
UK Deputy Prime Minister Nick Clegg - whose Liberal Democrat party is more pro-European than their coalition partners - said he regretted the failure to reach an agreement with all 27 EU states but said Mr Cameron had simply been seeking a "level playing field" across Europe.
But he warned eurosceptics against "rubbing their hands in glee": "Clearly there is potentially an increased risk of a two-speed Europe in which Britain's position becomes more marginalised, and in the long-run that would be bad for growth and jobs in this country."
He said Britain would now "redouble our efforts" to ensure the single market was "properly guaranteed".
However others in his party were more critical. Lib Dem peer Lord Oakeshott said: "It is a black day for Britain and Europe. We are now in the waiting room while critical decisions are being taken."