David Cameron suffered his first significant Commons defeat after Midland MPs demanded a tougher line on European Union funding.

MPs voted by 307 to 294 to back a Tory rebel call to cut the EU’s budget on Wednesday night.

The result emerged after a debate in which Shropshire MP Mark Pritchard (Con, The Wrekin), Staffordshire MP Bill Cash (Con, Stone) and Black Country MP Chris Kelly (Con, Dudley South) demanded the Government cut the United Kingdom’s contributions to the organisations in real terms.

The Prime Minister said he would veto any real-terms rise in the 2014/20 multi-annual financial framework.

“At best we would like it cut, at worst frozen, and I’m quite prepared to use the veto if we don’t get a deal which is good for Britain,” he said.

Treasury minister Greg Clark pleaded with MPs to support the Prime Minister as he went to Europe to “bat for Britain” over the seven-year spending plan.

But Labour MPs lined up behind the Tory rebels in calling for the Government to support nothing less than a real-terms cut in the budget.

The result of the vote is not binding on the Government but was a major embarrassment for ministers.

It followed a rebellion on Europe last year, when 81 Conservative rebels backed calls for a referendum on whether to stay in the EU, leave or renegotiate the UK’s terms of membership, against the wishes of the Government.

The result came after Birmingham Labour MP Gisela Stuart (pictured) said Britain may eventually have to leave the EU entirely.

The MP admitted she would be “seen as a lunatic” by critics, but warned the major parties would eventually need to rethink their assumption that the UK must remain a member.

She said: “Both the major political parties have to rethink their stance.”