UK Foreign Secretary Jack Straw has said Britain is ready to pay an extra 1bn euros (£680m) per year into the European Union budget.
The offer is part of a package aimed at ending deadlock over the 2007-13 EU budget before the end of the year.
Mr Straw said Britain wanted to pay its fair share of the costs of enlargement.
But the President of the European Commission, Jose Manuel Barroso, said the UK deal was "unacceptable" and left the EU with insufficient funds.
The proposed deal cuts development aid to the 10 new member states but makes it easier for them to get the money.
The overall size of the budget would also be reduced to 847bn euros from the 871bn euros proposed by the Luxembourg EU presidency earlier this year.
KEY POINTS OF UK PROPOSAL
The UK pays 8bn euros more over seven years
Total budget of 847bn euros over the period
Spending goes below 1% of EU gross national income by 2013
Cut in development aid to new member states
Cuts in rural development payments to older members
Cut in funding for EU bureaucracy
Major review of all spending, including CAP, in 2008
Mr Barroso said the UK proposal was more suited to a "mini-Europe, not the strong Europe that we need".
"As it is, the UK presidency proposal is unacceptable. It is simply not realistic," he said.
He added that it needed to become "fairer" to the new member states.
France urged the British presidency to "accept a substantial and lasting reform of the British rebate" in the common interest of the European Union.
"The refusal to exclude the essential spending for enlargement from the calculation of the British rebate is unacceptable, as much from a financial viewpoint as from the viewpoint of solidarity and equity," Foreign Minister Philippe Douste-Blazy and European Affairs Minister Catherine Colonna said in a written statement.
They added the proposals did not appear to be "of a nature to lead to the agreement for which we all wish".
German Chancellor Angela Merkel declined to comment, saying she had not had time to the study the details.
Polish Prime Minister Kazimierz Marcinkiewicz also rejected the UK proposal.
"The proposal is not based on solidarity. In this form it is unacceptable," he said.
MOVES TO HELP NEW MEMBERS
Countries need only match EU funds with 15% of national funds (down from 20%)
Funds can be used for housing projects, for first time
Countries have three years to spend the money (up from two)
On Friday, after meeting Mr Blair in Budapest, he had sounded more positive than other Central European leaders at the same meeting, saying that some progress was being made towards a deal.
The UK says that the cut in aid to the new member states is only a "theoretical" one, as in the past no country has managed to use these funds to the full.
In exchange, Britain also proposes that rules for spending the money should be eased.
Mr Straw said the proposal still envisaged an "enormous amount" of money for development aid in the new member states, equivalent to double the Marshall Fund spent on the reconstruction of Europe after World War II.
Reports last week suggested the UK was prepared to give up between 12% and 15% of the rebate won from the EU by former leader Margaret Thatcher in 1984.
Mr Straw said the extra UK contribution could either come from cutting the rebate, currently worth 5.7bn euros (£3.8bn), or increasing the amount of VAT receipts transferred to the EU.
He said there could be no fundamental change in the rebate without fundamental reform of the Common Agricultural Policy.
BBC Europe Editor Mark Mardell says the Germans and Dutch would be better off under the deal, Swedes, French, Spanish and Italians would stay much the same.
A proposed cut in funds for the EU bureaucracy would hurt Luxembourg and Belgium.
Mr Straw said that the British proposals would mean that for the first time, Britain's net contribution to the EU would be roughly the same as France's and Italy's.
The last attempt to agree a framework budget for 2007-13 ended in failure in June.
At that time, the UK rejected calls to give up its rebate without an overhaul of the Common Agricultural Policy, but this faced fierce opposition from France and others.
The UK is keen to reach a deal on the budget at an EU summit on 15 and 16 December, two weeks before the end of its EU presidency.