European Commission chief José Manuel Barroso urged European Union members yesterday to clinch a deal over the bloc's long-term budget in the first half of 2005, saying a delay could undermine key Union policies.

"Political agreement by June next year is crucial for the European project," Mr Barroso said in the European Parliament, briefing deputies on last week's EU summit in Brussels.

Leaders were split over the 2007-2013 budget as net payers advocating austerity clashed with net beneficiaries hungry for cash, and "old" and "new" EU regional aid recipients quarrelled among themselves over how much they should receive.

Mr Barroso warned that a prolonged dispute could throw EU financial planning into disarray, threatening timely allocation of billions of euros to build roads, carry out research projects, clean up the environment and create jobs.

"Without a deal on time, fulfilment of the political priorities that the 25 member states have agreed upon will be delayed, and Europe cannot afford that to happen," he said.

He reaffirmed his support for the 2007-2013 budget proposal drafted by his predecessor Romano Prodi, which envisages higher spending to help finance the EU's eastern enlargement in May to 25 from 15 member states.

The EU's six big contributors - Austria, Britain, France, Germany, The Netherlands and Sweden - oppose the plan, saying expenditure must not rise at a time when many governments are struggling with their budget deficits amid economic stagnation.

The Commission wants spending to increase to 1.14 per cent of gross national income during 2007-2013, or about €930 billion, while net payers say expenditure should be frozen at the current level of about one per cent.

Spain, Greece and Portugal, which have so far received the bulk of EU aid, are afraid that a lean budget would deprive them of funds, because the paymasters would like Union assistance to focus on new member states.

Some member states are also demanding that a rebate paid to Britain out of EU coffers should be scrapped.