The German government has denied reports of a rift with Britain over plans to increase the budget of the European Union.

But it has insisted that a deal is necessary to demonstrate the 27-nation bloc's ability to act as one.

The Financial Times said today that Chancellor Angela Merkel was threatening to cancel an EU summit in November unless Britain backed off on its demands for a spending freeze.

"This is not the case," her spokesman Steffen Seibert told reporters in Berlin today. 

"I expressly deny this report,'' the spokesman added.

He confirmed Merkel and British Prime Minister David Cameron had discussed the bloc's proposed budget for 2014 to 2020, and noted that Germany agrees on the need for only a "very moderate" increase at a time when many EU member states have imposed strict austerity measures to cut government debt.

The EU's budget was €147.2 billion in 2012. The European Commission, the EU's executive arm, has proposed gradually increasing the budget to about €150 billion a year by 2020.

As a percentage of the European economy the EU's budget would shrink each year from its current 1.12% to 1.03% under this proposal.

Seibert said Germany was working hard with Britain and others to strike a deal at the budget meeting scheduled for November 22-23. "We are convinced that such an agreement would be a strong sign that Europe could send that it can get things done," he added.

British Prime Minister David Cameron is deeply skeptical over the closer ties being forged between members of the euro zone as they seek to handle the continent's debt crisis, and has acknowledged that the UK may need a future national vote to decide whether its membership of the European Union should continue.