Prime Minister David Cameron has firmly rejected any EU moves towards acquiring military powers.
Arriving at an EU summit on security, he backed closer European co-operation but warned against stepping up defence policies under an EU flag at the expense of the long-established Nato alliance, which includes 22 of the 28 Union members.
"It makes sense for nation states to co-operate over matters of defence to keep us safer," he said. "But it isn't right for the European Union to have capabilities, armies, air forces and all the rest of it.
"We need to get that demarcation right and I am confident we will do so, we are making good progress."
The summit is considering deeper defence co-operation between member states and long-term funding and development of European "remotely piloted aircraft systems" (RPAS) - drones - with a European Commission role in their regulation.
Before the talks a Downing Street source said: "The Prime Minister will be making clear the primacy of Nato. We see Nato as the bedrock of our collective defence. Any EU action should be complementary to that, but not duplicating it. We don't want to see an extension of EU action in this area.
"Take drones as an example: there can be no question of the Commission owning dual-use military capabilities such as drones. Defence kit must be nationally owned and controlled and that should be clear to everyone."
At Mr Cameron's request Nato chief Anders Fogh Rasmussen was sitting in on the talks, the day after he used an interview with the Financial Times to urge closer "co-operation and co-ordination" between the EU and Nato.
That required a bigger financial commitment to defence from EU member states, he warned. Otherwise, the ERU would not be able to play its role in international crisis management and would be marginalised.
Before the summit began, UK government officials successfully argued for the removal from early draft summit conclusions of the phrase "Europe's armed forces", insisting any wording implying a possible transfer of defence sovereignty was unacceptable.
Mr Cameron is seeking further changes at the summit to stress Nato's distinct role in European defence and to make clear that the role of the EU's Common Security and Defence Policy, set up four years ago, should be in support of member state action.
The summit is not discussing setting up EU drones, but the draft conclusions call for "preparations for a programme of a next-generation European medium altitude long endurance RPAS (drones)" and "close synergies with the European Commission on regulation (for an initial RPAS integration into the European Aviation System by 2016)".
Draft summit conclusions on defence urge EU leaders "to deepen defence co-operation by improving the capacity to conduct missions and operations and by making full use of synergies in order to improve the development and availability of the required civilian and military capabilities".
The text warns: "Defence budgets in Europe are constrained, limiting the ability to develop, deploy and sustain military capabilities. Fragmented European defence markets jeopardise the sustainability and competitiveness of Europe's defence and security industry."
It goes on: "The EU and its member states must exercise greater responsibilities in response to those challenges if they want to contribute to maintaining peace and security together with key partners.
"The Common Security and Defence Policy (CSDP) will continue to develop in full complementarity with Nato.
"This requires having the necessary means and maintaining a sufficient level of investment."
European Parliament president Martin Schulz - bidding to take over as president of the EU Commission next year - told the summit that the EU should take great responsibility for the defence and security of the people of Europe.
"If we wish to defend our values and interests, if we wish to maintain the security of our citizens, then a majority of members of the European Parliament consider that we need a headquarters for civil and military missions in Brussels and deployable troops," he said.
He told EU leaders: "With regard to troops and capabilities too, pooling and sharing is in the interest of all of us. European forces are still organised on a national basis.
"Each country trains and maintains its personnel nationally. Doctrine, logistics and command structures therefore differ substantially. That leads to compatibility problems in joint deployments, costly overcapacity and multiplications. Our soldiers increasingly lack everything which makes armies modern, quick and mobile: tanker aircraft, transport, IT, reconnaissance, communications.
"No European country can any longer field troops in numbers and with the capabilities and technical equipment required for present-day conflicts. But together we can do it."
Mr Schulz acknowledged the problems of closer EU moves on defence.
"I appreciate that it is not easy to explain to people back home why we need to co-operate more closely at European level in such a sensitive field as defence and security policy. Protecting its citizens has traditionally been a key task of the nation state and therefore also one of the foundations of its legitimacy.
"But we cannot close our eyes to reality: the world has changed and we are existentially connected to that world. Nowadays we can only defend our citizens jointly".
On drones, a European Commission official insisted: "The Commission has no intention to own or procure drones".