Tony Blair has said Britain's £3bn EU rebate is an "anomaly that has to go" - but he made clear that its removal had to be linked to farm subsidy reform.
Mr Blair has been holding talks with his Swedish counterpart
The prime minister said he still hoped a budget deal was possible during the course of Britain's EU presidency.
He spoke after talks with Swedish Prime Minister Goran Persson, who said the budget row went wider than the rebate.
Last week talks between EU nation heads turned sour and leaders were unable to agree a new European Union budget.
Mr Blair said: "We have made it clear all the way through that we are prepared not just to discuss and negotiate upon, but to recognise that the rebate is an anomaly that has to go, but it has to go in the context of the other anomaly being changed away."
Mr Persson said: "It's not fair to describe the conflict about the budget as a question or an issue about the British rebate. No - it's a discussion about the structure of the whole budget."
He later told BBC Radio 4's World that it was the rejection of the EU constitution, not the budget, that was the real problem in Europe.
"The budget deal is quite simple compared to the mega problem that the constitution creates," he said.
However, he said Sweden, Britain and the Netherlands "think we pay too much to the EU - we want to have some type of rebate".
He said he believed it was "very fortunate" that Britain would be assuming the EU presidency on 1 July, headed by Mr Blair.
"I hope the UK will contribute to the solution and during their presidency present a new structure for the budget," he said.
The UK has so far refused to give up the £3bn a year rebate without a wider deal to cut EU farm spending.
President Jacques Chirac meanwhile is refusing to budge on farm subsidies.
Mr Blair will fly back to Brussels later this week to address the European Parliament about his plans for the British presidency of the EU.
He has described the UK's EU rebate as "merely a corrective mechanism designed to address an underlying imbalance in the budget".
In a veiled attack on the position taken by France and Germany, Mr Blair told MPs on Monday: "Europe's credibility demands the right deal - not the usual cobbled together compromise in the early hours of the morning but a deal which recognises the nature of the crisis."
He also told MPs that the proposed European constitution "cannot proceed" after "no" votes in France and the Netherlands.
Tory leader Michael Howard accused Mr Blair of "wasting" two years trying to sell an "outdated vision of the EU" through the proposed constitution.
Liberal Democrat leader Charles Kennedy said people who favoured close ties to Europe would be feeling "a sense of pessimism" and said it was time to "build a new consensus" and "a new sense of optimism".
The row is threatening to overshadow the G8 summit on 6-8 July at Gleneagles, with reports that Mr Chirac will arrive a day after talks get under way.