Tony Blair's plans to oversee Britain's entry into the euro received a setback yesterday after EU officials said that Britain must rejoin the European exchange rate mechanism before it can be admitted entry to the single currency.

The Maastricht treaty requires countries to spend two years in the ERM before joining the single currency in order to prevent big fluctuations in foreign exchange markets. However, because Britain was forced out of the ERM in 1992 in humiliating circumstances, resuming membership is frowned upon by the Treasury which last night said: "We have no intention of rejoining the ERM."

Brussels officials had previously hinted that the rules could be bent if there was a sustained period of exchange rate stability between the pound and the euro.

However the new stance has been attributed to the EU's determination to have tough rules on entry - particularly in relation to the EU's eastwards expansion which means that nations such as Latvia and Slovakia are poised to join the union in 2004.