The formula, backed by British Prime Minister, Tony Blair, has been swiftly condemned as unworkable by several EU members.
In a highly technical 36-page document, Mr Blair's government also called for a thorough review of the way the European Union spends its money, starting with the European Commission, in 2008.
The proposals are Britain's last chance to resolve the dispute before its term as EU president expires December 31.
They would cap EU spending in the period 2007 to 2013 at 1.03 percent of the 25-nation bloc's gross national income, or an estimated 846.8 billion euros.
While Britain would forego eight billion euros over seven years of its long-treasured EU budget rebate, funds for the new EU member states, mostly ex-communist countries, would be trimmed by seven to eight percent.
Proposals rejected
The proposals were immediately and flatly rejected in Brussels, and by the biggest of the 10 newest members, Poland as well as EU heavyweight France.
European Commission President Jose Manuel Barroso, who initially sought a 1.025 trillion euro budget, or 1.24 percent of gross national income, described the plan as "unacceptable" and "not realistic".
"This proposal amounts to a budget for a 'mini Europe,' not the strong Europe that we need," he said in Brussels.
"In this form the budget is not acceptable to us," echoed Prime Minister Kazimierz Marcinkiewicz of Poland, by far the biggest of the enlargement countries.
"This budget does not abide by the principle of solidarity," said Mr Marcinkiewicz.
France was similarly unimpressed, with Foreign Minister Philippe Dosute-Blazy saying the plan "does not seem likely to bring the agreement we all want".
Britain faces a daunting task finding agreement on its proposals when EU leaders convene in Brussels from December 15-16 for their year-end summit.
It coincides with the World Trade Organisation (WTO) ministerial meeting in Hong Kong, where farm subsidies, a major issues of EU contention, will be a make or break issue.
Mr Blair will meet on Thursday and Friday with counterparts from no fewer than eight other EU member states in London, a week after getting a frosty reception during a swing through eastern European capitals.
Foreign Secretary Jack Straw said the new members states would get 150 billion euros in structural cohesion funding, which he argued would still be "an enormous amount".
"Total funding through all EU programs to the 10 is worth twice the
(US-financed) Marshall Plan which funded the reconstruction of western Europe nearly 60 years ago," he told reporters in London.
Farmers favoured
Britain would give up eight billion euros over 2007-13 to help shoulder the cost of enlargement, a concession that will open Blair to allegations by domestic critics that he is caving in to the EU over the rebate.
"We are prepared to pay our fair share (of enlargement), but no more than our fair share," Straw said.
The rebate was won by then-prime minister Margaret Thatcher to compensate London for the relatively small amount it reaps from Brussels under the Common Agricultural Policy, which most generously favours French farmers.
The proposals from London make no mention of the CAP, which eats up 42 percent of all EU spending. However, Straw said farm subsidies would be part of a "comprehensive and far-ranging" review that could lead to mid-term changes to the 2007-13 calculations.
Mr Blair's refusal to give up the rebate without fundamental reforms to EU farm policy, and French President Jacques Chirac's equally stubborn refusal to debate the CAP, led to the collapse of the last formal EU summit in June.
Luxembourg, which then held the EU hot seat, had proposed a budget capped at 1.06 percent of gross national income.
Failure to find agreement at the upcoming summit will send the vexed issue into the lap of the Austrian presidency which takes over on January 1, or potentially the Finnish presidency from July 1.
Ominously, the British proposals included a front-page, bold-face warning that the proposals were "complementary and inseparable".