The European Union has hardened its position on Brexit talks ahead of a key summit, making new demands on financial services, immigration and Britain's exit bill.

The leaders of the other 27 countries will stress that Britain will be liable for costs for at least a year after it leaves in 2019, according to the draft negotiating guidelines seen by AFP.

They insist that Britain's huge finance industry must also stick to EU rules if it wants easy access to European Union markets.

And Britain should give EU citizens permanent residency after living there for five years, they say, in a challenge for the British government which has vowed to limit immigration.

European diplomats agreed the changes yesterday at a meeting with the bloc's chief Brexit negotiator Michel Barnier, ahead of Saturday's Brussels summit where EU leaders will approve "red lines" for two years of tough negotiations.

The leaders are also expected to have a "wider debate on Brexit and the upcoming talks" at the summit, a European source told AFP.

The EU's language has notably toughened from EU President Donald Tusk's first draft, issued two days after British Prime Minister Theresa May triggered the divorce process on 29 March.

The new harder stance comes as Mrs May prepares to hold talks with European Commission chief Jean-Claude Juncker and Mr Barnier in London tomorrow.

The section on Britain's divorce bill, estimated by EU sources at €60bn, now adds a mention of "issues resulting from" the bloc's seven-year budget from 2014 to the end of 2020.

Previously it only mentioned costs up to Britain's withdrawal in 2019, but the new version spells out the EU belief that Britain is liable for all costs it signed up to while a member.

Britain's prized financial services industry is also targeted, with changes to the draft making it clear that arrangements for it will not necessarily be tied to any future trade deal with the EU.

Instead the City of London must "respect [the EU's] regulatory and supervisory regime and standards and their application" if it wants to do business in Europe. 

The EU has meanwhile made a top priority of protecting the rights of three million European citizens living in Britain and one million Britons living in Europe, who currently can work and live anywhere they choose in the EU.

But the latest draft adds a new demand for EU citizens to have "the right to acquire permanent residence after a continuous period of five years of legal residence," a move that is likely to be opposed by the British government.

The opposition Labour Party says it will immediately guarantee the rights of EU citizens living in the country if it wins the 8 June general election.