We are not aiming for a row but that will depend on the other side

UK Treasury official

Mr Brown wants to run a budget deficit over the next few years to help pay for a large increase in public spending.

But the plan - unveiled in last month's budget - could fall foul of EU rules and may even jeopardise early British entry into the single European currency.

The row comes as one of Mr Brown's closest political allies suggested Britain could be using the euro "within two years".

Firm commitment

In an interview with The Times newspaper, Small Business Minister Nigel Griffiths said: "I think we will be in within two years if things go as they are and we meet our economic tests - and my hunch is we will."

Griffiths: euro "hunch"

The interview is being seen as the clearest sign yet that the government is gearing up for a referendum on euro entry.

It comes as Europe Minister Peter Hain steps up his campaign to sell the single currency to the British public.

In a speech later on Tuesday, Mr Hain is expected to say there is no alternative to EU membership - after a Foreign Office poll suggested one in three people want to withdraw from the European Union altogether.

Budget row

In Brussels on Tuesday the chancellor will argue the case for Britain running a budget deficit to pay for improvements to public services.

Such a move is potentially in conflict with the EU's Stability and Growth pact, which dictates that countries must be "close to balance" or in surplus.

A Treasury official said Britain was "still unclear about what close to balance means.

"We are not aiming for a row but that will depend on the other side," he told Reuters news agency.

'Disadvantage'

At the back of Mr Brown's mind will be the fact that if Britain were to decide in the next two years to join the euro, it could be forced by the Stability and Growth pact to cut public spending or raise taxes.

The government should stop playing games over the euro

Shadow Chancellor Michael Howard

Meanwhile, Bank of England Governor Sir Edward George has given a boost to the pro-euro camp by saying he would not oppose UK entry - if the public wanted it.

In an interview with the Financial Times newspaper, Sir Edward said the Bank would "see its responsibility as making a success of whatever was decided" in a referendum.

Sir Edward has previously been perceived to lean towards the sceptical side of the debate about the benefits of UK entry into the euro.

Spring referendum

Labour remains in favour of euro membership, in principle, but says it is waiting for the right economic conditions.

The only firm commitment made by Tony Blair is that there will be an assessment before June 2003 to determine whether Gordon Brown's five economic tests for entry have been met.

But most observers believe the government is preparing to hold a referendum in the Spring.

Public service 'crisis'

Shadow chancellor Michael Howard said: "The government should stop playing games over the euro.

"If they want to go in they should get on with it.

"If they don't they should stop talking about it and concentrate on dealing with the crisis within our public services," he said.