European Commission President Jose Manuel Barroso has written to UK Prime Minister Tony Blair asking for more cuts to the UK rebate.
The European Commission president met Mr Blair on Friday
The UK has offered to cut 8bn euros (£5bn) from the rebate between 2007 and 2013 but Mr Barroso called for "a further effort from the UK".
He said this could unlock agreement on the budget at a summit later this week.
The UK is currently working on a new budget proposal after its first one was rejected by the other states last week.
The UK's first proposal set the overall level of expenditure at 1.03% of the EU's gross national income, and envisaged a significant cut in the amount of development aid for the 10 new member states, which joined the EU in 2004.
"New member states need to be offered significantly higher levels of investment than in the current proposals," Mr Barroso said.
He also said temporary changes to the UK's contribution would not suffice, indicating that he wanted a permanent change to the way the rebate was calculated.
"This is crucial, without this we cannot have an agreement," he said.
POINTS OF FIRST 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
He said the EU was facing a "defining week".
According to diplomats, only four member states at a meeting of foreign ministers last Wednesday accepted the UK proposals.
A number of countries have echoed Mr Barroso's call for bigger cuts to the UK rebate, currently worth 5.7bn euros (£3.8bn) per year, and for more funds for the new member states.
Room for manoeuvre
Mr Barroso says the overall size of the EU budget should also increase since the size of the EU had increased.
France, meanwhile, has rejected UK proposals for a major mid-term review of the budget that could lead to changes in farm subsidies before 2014.
Mr Blair has indicated that the UK's new budget proposal is unlikely to be hugely different from the old one, saying that "the room for manoeuvre is very limited, including obviously with ourselves".
Britain wants a deal at the summit in Brussels on Thursday and Friday, two weeks before the end of its EU presidency, but Foreign Secretary Jack Straw said on Monday that it did not want a deal "at any price".
Mr Barroso met Mr Blair for talks in London on Friday, and came out saying he felt more positive, knowing that the UK would table further proposals.