Mr Blair told BBC News: "If we are isolated and we are right, then that's the correct position to be in."
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His comments came as Britain stood alone amid further controversy after ministers agreed to shelve plans for an EU-wide tax on savings.
Jonathan Sullivan, cabinet chief for commission president Romano Prodi, described Britain's refusal to accept a compromise on the issue as "very disappointing".
No trade war
The prime minister dismissed the possibility of a trade war over the illegal French ban on British beef as "foolish".
He added: "We always had two choices. We either persuaded the French, which it was entirely sensible to do, or alternatively we had to make sure we had the rest of Europe and the European Commission on our side to take legal action.
"We haven't persuaded them, so we take legal action."
But responding to Mr Blair's remarks the UK opposition leader William Hague said the prime minister had backtracked from a statement he made in 1994 when he insisted he would never be isolated in Europe.
"At last, Tony Blair has acknowledged that you can be isolated in Europe whilst speaking up for things which are right for Britain."
Row over tax
Britain refused to give ground in the argument over savings tax, prompting Mr Sullivan to concede that "We've gone as far as we can".
Chancellor Gordon Brown had argued that thousands of jobs would be lost if the City of London's lucrative eurobond market was "chased out" of town by the new tax.
But Mr Blair put a European spin on the decision to shelve the plans -a working group will reconsider them - saying protection of the market was in Europe's interest.
He said Britain could "make progress in a way that is fully compatible with the right and proper interests not just of the UK but of Europe in protecting London as a major financial centre."
However, Finnish Finance Minister Sauli Niinisto said the solution was "not a success," adding "the only other solution would have been to forget all about a tax package at this summit. This is just a bit better than that."
Germany and France are furious claiming the tax is essential to cut corruption.
German Finance Minister Hans Eichel said: "There shouldn't be tax havens for individual citizens in Europe."
However France itself can expect to come in for some criticism for flouting EU law by banning British beef imports.
Sanctions on Russia
EU leaders also issued a firm condemnation of Russia's military offensive in Chechnya.
In a two-and-a-half page declaration they demanded an end to Russia's "disproportionate" use of force, and called on Moscow not to carry out its "ultimatum" to the citizens of Grozny.
Earlier this week Russia said it would pummel the Chechen capital on Saturday.
Disagreements over tax did not prevent the union giving official backing to French and British plans to set up a rapid reaction force capable of dealing with European conflicts.
The 50,000-strong military force will be in place by 2003.
EU enlargement is another of the key issues being discussed at the summit and it is expected that the group of applicants for full EU membership will rise to 12.
One major issue that has already been resolved at the summit is that Turkey will now be named as an official candidate to join the EU.
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