DAVID Cameron threatened legal action yesterday if a new European deal jeopardised British interests, as he was mocked by Ed Miliband over his "phantom veto".

The Prime Minister, reporting to MPs following Monday's informal Brussels summit, said he would pursue legal action if the European Commission and the European Court of Justice acted against the single market on the back of the deal struck by 25 EU members on fiscal policy.

Mr Cameron again defended his decision not to sign up to an agreement last December, because it did not provide for UK safeguards. "I did not get those safeguards so I vetoed that treaty," he declared.

However, Labour MPs scoffed with laughter when he said: "As a result, eurozone countries are making separate arrangements outside the EU treaties for strengthening budgetary discipline, including ensuring there are tougher rules on deficits."

Twenty-five of the 27 EU countries agreed the Brussels deal thrashed out before Christmas; only Britain and the Czech Republic failed to agree.

The Opposition mocked Mr Cameron when he admitted the UK would allow the Commission and the Court of Justice to monitor the new rules, having previously said the institutions could not have responsibility for monitoring deals agreed outside the full EU.

The PM added: "The new inter-governmental agreement is absolutely explicit and clear that it cannot encroach on the competencies of the European Union and they must not take measures that in any way undermine the EU single market.

"We will watch this closely and, if necessary, we will take action, including legal action, if our national interests are threatened by the misuse of the institutions."

However, the Labour leader insisted Mr Cameron had raised a "phantom veto", which offered no protection to British interests. Mr Miliband declared: "With this Prime Minister a veto isn't for life, it's just for Christmas."

He insisted the agreement among the 25 EU member states would involve the Court of Justice, the Commission and the European buildings.

He told Mr Cameron: "You say it is not really a treaty ... [but] it talks like a European treaty, it walks like a European treaty, it is a European treaty."

The Labour noted how Britain "will not even have observer status" at the meetings of the 25. He asked: "Who is going to protect the British national interest at these meetings?"

Mr Miliband noted how the PM was "committed to failing austerity at home" so was unable to oppose "collective austerity" in the eurozone.

Mr Cameron hit back, pressing the opposition leader on whether or not he would have signed the December treaty.

"The fact is, Labour always fails to stand up for Britain," declared the Prime Minister, claiming the problem with Mr Miliband was that he could "not make up his mind whether he is muddled or weak; the fact is, he is both".

Sir Menzies Campbell, the former Liberal Democrat leader, praised Mr Cameron's "pragmatism" but Labour's Jack Straw asked: "What has been achieved by your veto except that we are outside the door?"

A raft of Conservative euro-sceptics intervened to urge the PM to stop the 25 from using European institutions to attack British interests.

Veteran Tory Bill Cash said the European Scrutiny Committee was conducting an inquiry into what he called the "agreement otherwise known as this non-EU treaty".

He argued European policy-making was on a "slippery slope towards a more coercive, a more federal and a less democratic Europe" and asked: "Will you give us an assurance that never, while you are Prime Minister, will we fold this non-EU treaty into the treaties as a whole?"

The PM made clear this could not happen without the consent of every one of the 27 EU members. He added: "Because this isn't an EU treaty, because it's outside EU law, we are not in danger of that happening."