David Cameron has denied Labour claims the coalition is split on the issue of bringing back powers from Europe.
Opposition leader Ed Miliband said the prime minister "could not speak for the government" as he disagreed with his deputy Nick Clegg on how to proceed.
But Mr Cameron said both agreed about "rebalancing" powers and Labour was the only party backing the status quo.
The PM later joined other European leaders in Brussels for a crunch meeting on the euro-zone debt crisis.
Ahead of the meeting, the party leaders clashed over Europe and the repercussions of Monday's rebellion by 80 Conservative MPs over a referendum on the UK's membership of the EU.
Mr Miliband said the prime minister had not been able to focus on the problems facing the euro-zone because of internal party divisions over Europe, saying he had not been "leading but pleading".
The government was divided over whether to repatriate powers over employment and social affairs, he argued, with the PM committed to this and Mr Clegg - who was sitting next to the PM during the session - appearing to rule it out.
"One day we have the PM saying yes to repatriation and twenty four hours later the deputy prime minister saying no," he said.
"Why does he not come clean about the split between him and the deputy prime minister? Who speaks for the government?
It is no wonder his backbenchers are saying there is no clarity about the government's position."
Mr Cameron said the coalition agreement between the Conservatives and Liberal Democrats "talked about rebalancing power between Britain and Europe" and that Mr Clegg had said there "was a perfectly good case" for looking at the division of responsibilities.
The government had succeeded in getting Britain out of the European bailout fund and it was the Labour leader, whom he said wanted to join the euro and increase the UK's debt, who was "split from reality".
"What we have is very plain," he said.
"There is a group of people on this side of the House who want some rebalancing, a group of people who want a lot of rebalancing and a complete mug who wants no rebalancing at all."
EU leaders are under pressure to come up with a package of measures to deal with Greek debt and bolster banks.
Wednesday's meetings will start at 1800 BST and could continue through the night until an agreement is reached.
The UK has insisted that all 27 EU nations - not just the 17 countries that use the single currency - should be present to help hammer out an agreement which can reassure the markets, although the euro-zone bloc is expected to meet separately as well.
French President Nicolas Sarkozy has accused the UK of seeking to "interfere" in the future of the euro despite not being a member of the single currency but Mr Cameron has defended his stance, saying it is "in British interests" that the euro-zone is sorted out.
"Some of the issues we'll be discussing this afternoon are directly relevant to Britain in terms of strengthening banks across Europe," he said. "But in any event we need to have the greatest possible support for the most comprehensive solution possible."
The BBC's political correspondent Ross Hawkins said Mr Cameron was fearful of euro-zone members taking far-reaching decisions affecting the whole of Europe and wanted to exert as much influence as possible.
While British banks are not among those in Europe requiring immediate recapitalisation, the UK will not be involved in an enlarged bailout fund as it is not a member of the euro.
The Daily Mail reported that UK liabilities could increase if the International Monetary Fund - of which it is a member - agreed a possible new initiative to make loans to troubled countries.
But it said Treasury officials would contest this idea, believing the euro-area bailout fund would be adequate.