David Cameron has promised a referendum on the UK's membership of the EU by the end of 2017, and pledged he would campaign "with all my heart and soul" for Britain to stay in.
In a major speech in London, the Prime Minister said the Conservative manifesto for the 2015 general election will ask for a mandate to negotiate a "new settlement" for Britain in Europe, which will be put to voters in a referendum within the first half of the five-year parliament.
His offer threatened to drive a wedge through the heart of the coalition Government, with Deputy Prime Minister Nick Clegg warning that a renegotiation of Britain's position in Europe was "not in the national interest" and would lead to years of uncertainty for business.
There were immediate questions over whether other EU states will be prepared to negotiate a special "a la carte" membership for the UK. German foreign minister Guido Westerwelle said: "Germany wants the United Kingdom to remain an active and constructive part of the European Union... but cherry-picking is not an option."
His French opposite number Laurent Fabius warned: "Say that Europe is a soccer club. You join this soccer club, but you can't say you want to play rugby." And in a riposte to Mr Cameron's welcome to French businesses fleeing the Paris government's 75% top tax rate, Mr Fabius joked that France would "roll out the red carpet" for businesses wanting to relocate if the UK quit the EU.
Speaking to a business audience in the City of London, Mr Cameron called for a new EU treaty to reshape the 27-nation bloc, resolve the problems of the eurozone, allow the transfer of powers back from Brussels to national governments and make Europe's economy more competitive and its institutions more flexible and democratically accountable.
Crucially, he said it was time for the EU to ditch the universal commitment to "ever closer union" and accept that members can decide for themselves how deeply they want to integrate. And he stressed that the EU's "driving mission" should be to complete and protect the single market.
Mr Cameron said it was his "strong preference" to enact these changes for the whole EU, not just Britain alone. But if other member states are unwilling to go ahead with a new treaty, Mr Cameron said he was ready to renegotiate the UK's position to achieve a settlement "in which Britain can be more comfortable and all our countries can thrive".
Standing in front of a backdrop with the slogan "Britain and Europe", Mr Cameron said: "It is time for the British people to have their say. It is time to settle this European question in British politics."
And he added: "When the referendum comes, let me say now that if we can negotiate such an arrangement, I will campaign for it with all my heart and soul. Because I believe something very deeply. That Britain's national interest is best served in a flexible, adaptable and open European Union and that such a European Union is best with Britain in it."