Ten EU countries have rallied behind Britain's call to limit an increase in the EU budget for next year to 2.9% - well below the rise Euro MPs called for.
France and Germany are among the group backing British Prime Minister David Cameron on the budget, the BBC reports.
The European Parliament wants a 5.9% rise, and the EU's executive arm, the European Commission, supports this.
If no compromise is reached by a mid-November deadline the budget will remain frozen at the 2010 figure, the BBC says. A freeze was what Mr Cameron was originally calling for, but other EU leaders refused to back the idea.
In a letter to the European Council President, Herman Van Rompuy, the 11 leaders say the budget proposals from the Commission and the parliament are unacceptable at a time when they are having to control their own expenditure.
The main focus of the summit talks on Thursday was a plan to tighten EU budget surveillance, to prevent any future debt crisis like the one which triggered an emergency bail-out for Greece in May.
EU leaders backed a report by a European Council task force on measures to strengthen economic governance in the EU, but remained divided over whether an EU treaty change would be needed to make a crisis mechanism legally watertight.