David Cameron has signalled he is ready to lead Britain out of the European Union if other member states set their faces against tough new proposals to cut immigration.
In a much-anticipated speech setting out plans to bar EU migrants from claiming welfare for the first four years after arriving in the UK and deport those who do not find jobs within six months, Mr Cameron warned that he will "rule nothing out" if other countries turn a deaf ear to British concerns.
But the Prime Minister disappointed eurosceptic Tories by stopping short of proposing a cap on European migration, which had been floated in the run-up to the speech.
The European Commission said Mr Cameron's proposals should be considered "calmly and carefully", while pointing out that EU law already allows national governments to tackle abuse of benefits.
But Labour leader Ed Miliband said Mr Cameron had "no credibility" on immigration and would not be believed by voters after failing to meet his "no ifs, no buts" pledge to cut net migration below 100,000 by 2015.
And Nigel Farage, whose campaigning on immigration has helped Ukip eat into Conservative support, said Mr Cameron had "zero control" over numbers of arrivals from the EU and his proposals were not enough to "turn the tide" of Tory fortunes.
The Prime Minister insisted that he still hoped to be able to recommend an In vote in the referendum on EU membership he has promised for 2017, and said he was "confident" of success in the renegotiation he plans if Conservatives win next year's general election.
But he left no doubt that he has not ruled out recommending British exit if other EU nations refuse to compromise on the principle of free movement and accept reforms that he said were "radical" but "reasonable and fair".
Welfare changes to cut migration from within the EU "significantly" will be an "absolute requirement" in the renegotiation, he said.
"If I succeed, I will, as I have said, campaign to keep this country in a reformed EU," said Mr Cameron."If our concerns fall on deaf ears and we cannot put our relationship with the EU on a better footing, then of course I rule nothing out."
Under Mr Cameron's plans, EU jobseekers will not be allowed to claim the new Universal Credit when they arrive in the UK and will be required to leave if they do not find work within six months.
Migrants will be able to claim tax credits and child benefit and apply for social housing only after four years and will receive no child benefit or child tax credit for offspring living abroad.