David Cameron is facing a backlash from Tory eurosceptics after performing a U-turn and abandoning his opposition to the European Court of Justice being used to enforce a new fiscal compact for the eurozone.
The prime minister has previously insisted that European Union institutions could not be used for a new pact because Britain will not be a signatory.
After his dramatic use of the veto last month to block a new treaty, he said the European Commission and the European Court of Justice could only carry out policies applying to all 27 member states.
However after a further EU summit in Brussels, Cameron did not press his case against the use of the institutions and said Britain would only make any challenge if its interests were "threatened".
The prime minister said: "We don't want to hold up the eurozone doing what is necessary to solve the crisis as long as it doesn't damage our national interests, so it's good that the new treaty states clearly that it cannot encroach upon the competences of the Union and that they must not take measures that undermine the EU single market."
He added: "The key point here for me is what is in our national interest, which is for them to get on and sort out the mess that is the euro. That's in our national interest. We will be watching like a hawk and if there is any sign that they are going to encroach on the single market we will take the appropriate action, if I may put it that way.
"The principle that the EU institutions can only be used with the permission of 27 (member states) has not changed. In as much as this (new treaty) is about fiscal union, fine: if it encroaches on the single market, not fine."
Tory MPs who were jubilant after Cameron wielded the veto voiced their fears ahead of the summit that the Prime Minister would allow EU institutions to be used to police the new pact. The matter is likely to be discussed at the 1922 Committee of Tory backbenchers on Tuesday. Mr Cameron will report back to the Commons on the latest summit.
Leader of Britain's Tory MEPs Martin Callanan said government policy on the fiscal compact had changed, partly because of a need to mollify Nick Clegg, the pro-Europe Deputy Prime Minister.
Callanan said: "There is no doubt that the government's position has altered since the December summit when they were insisting the institutions could not be used I blame a combination of appeasing Nick Clegg, who is desperate to sign anything the EU puts in front of him, and the practical reality that this pact is actually quite hard to prevent: the Government would have to ask the European Court of Justice to rule against itself having a role."
On Tuesday morning Ed Miliband accused David Cameron of selling Britain "down the river" having not secured any protections.
“I’m very concerned about what David Cameron has done because he trumpeted last December that he got a great deal for Britain, he’d protected us and everything and the way that Europe was going to go about this treaty that they were going to do wasn’t going to affect Britain," he said.
“Now he seems to have sold us down the river on a lot of things so I’m going to be asking him in the House of Commons today what exactly has he agreed to, what protections has he got for Britain."
“I take a simple view – he would have been better off staying at the table and negotiating for Britain, rather than actually pretending that he had made great progress and then failing to do so,” the Labour leader told ITV's Daybreak.