Prime Minister David Cameron's government suffered an embarrassing defeat in parliament this week when anti-EU members of his Conservative party teamed up with the opposition to demand a cut in the EU budget.

But Cameron, aware that a real-terms cut could be hard to win in Brussels, is instead pushing for a real-terms freeze in the budget, which would allow it to rise in line with inflation.

The Conservative-led coalition government also believes changes to the regional development funds are achievable, the Telegraph reported, citing a high-level, unnamed source as saying. The prime minister's office declined to comment on the report.

Calling for changes to the way these "structural and cohesion" funds - the second-biggest item in the EU budget - are managed may pacify some Conservative "euroskeptics" who want a looser relationship with Europe based on trade ties.

The European Commission wants 376 billion euros ($483 billion) from member states in the 2014-2020 period for the EU's cohesion funds, which are intended to help level out wealth inequality across the 27-nation bloc.

Some vulnerable areas in Britain such as Cornwall in the south west and Wales receive funding from that development pot.

Britain was the fourth-biggest net contributor to the EU budget last year with an overall donation of 5.5 billion euros.

European leaders will meet on November 22-23 to thrash out a deal. Cameron has said he wants to reach an agreement but is prepared to use Britain's veto if his demands are not met.

Conservative lawmaker Andrea Leadsom said reform of the cohesion funds was long overdue.

"Every member state gets structural funds," Leadsom wrote in the Telegraph. "Focusing money instead on the genuinely needy, and leaving richer countries to run their own schemes, would leave almost all member states better off, and save the UK approximately 2 billion pounds ($3.2 billion) each year." ($1 = 0.7785 euros) ($1 = 0.6235 British pounds)

(Reporting by Matt Falloon; Editing by Hugh Lawson)

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