The current turmoil in Europe is an opportunity for the UK to "refashion" its relationship with Brussels, David Cameron has said.
In a speech in London, the prime minister argued powers should "ebb back" from Brussels to Westminster as part of "fundamental" future reform.Although the EU is "out of touch" on many issues, he said it is not in the UK's national interest to exit.
The PM is under pressure from many of his MPs to renegotiate UK membership.
Some Conservatives want to go further and leave the EU altogether.
The prime minister's authority was directly challenged last month when 81 Tory MPs defied the leadership and voted for a referendum on the UK's continued place in the EU.
'Outward looking' Mr Cameron used a major foreign policy speech in the City of London to argue that the eurozone financial crisis has challenged longstanding assumptions about how the EU should evolve and its 27 members must now ask what kind of union they want in the future.
Claiming that the EU is too often seen as an "abstract end in itself" and detached from economic reality, he outlined his vision for a more "outward looking", "flexible" and "diverse" union which puts advancing its citizens living standards above all else.
"We have a right to ask what the European Union should and should not do and change it accordingly," he said."As I said, change brings opportunities. An opportunity to begin to refashion the EU so it better serves this nation's interests and the interests of its other 26 nations.
"An opportunity, in Britain's case, for powers to ebb back instead of flow away and for the European Union to focus on what really matters to underpin prosperity, stability and growth.
"That is the kind of fundamental reform I yearn for."
Staying inside Mr Cameron has been urged to spell out what powers he wants to claw back from Brussels and when negotiations on this might begin but he has appeared to rule out such a possibility in the short term and his Lib Dem coalition partners are wary of such a step.
But Tory MPs have said negotiations on amending EU treaties to allow for closer fiscal integration among eurozone members could start as early as next month and the UK must be prepared for this.
In his speech, the prime minister warned that Europe is "slipping behind" other economic powers and that unless it becomes more competitive, it will remain a "continent in trouble".
But he insisted that the UK's future remains within the EU, not outside it.
"Leaving the EU is not in our national interest," he will argue. "Outside, we would end up like Norway, subject to every rule for the single market made in Brussels but unable to shape those rules.
"Believe me, if we weren't in there helping write the rules they would be written without us - the biggest supporter of open markets and free trade - and we would not like the outcome."
'We sceptics' The BBC's political correspondent Robin Brant said this was a strong message about what the PM saw as the limits of ever-closer union with Mr Cameron referring at one point to "we sceptics".
Labour indicated earlier on Monday it was prepared to consider the case for "rebalancing" the division of powers between the UK and Europe but said this should not be a priority amid continuing efforts to stabilize the euro and the need to secure the future of the single market.
Shadow Treasury minister Chris Leslie said despite Mr Cameron's rhetoric, the government had actually been "sitting on the sidelines" in crucial debates about Europe's future.
In a wide-ranging address, the prime minister also defended the UK's intervention in Libya and said the new Libyan authorities had found evidence of chemical weapons hidden by the Gaddafi regime.
He also revealed that the UK plans to host an international conference on Somalia next year, saying it is a "failed state that directly threatens British interests".
The event will look at ways of dealing with piracy off the coast of Somalia, protecting ships in the Gulf of Aden, challenging extremist groups in Somalia and the risk of UK citizens being radicalised there.
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