UPDATE 2-EU budget deal held up over British rebate demands
* Cameron balks at changes that could shrink London's rebate
* Row delays agreement to finalise long-term EU budget
* EU officials say confident solution will be found
* Budget runs from 2014-2020, covers 1 trillion euros
BRUSSELS, June 27 (Reuters) - A deal to finalise the European Union's long-term budget hit a late snag at a summit of EU leaders on Thursday, after Britain objected to accounting changes that threaten to eat into its cherished budget rebate.
Earlier in the day, EU negotiators overcame opposition from the European Parliament to secure a political agreement on spending plans for 2014-2020 worth nearly 1 trillion euros ($1.3 trillion).
But it became clear there was an outstanding issue with the deal when British Prime Minister David Cameron arrived in Brussels promising to fight for his country's rebate, first negotiated by Margaret Thatcher in 1984.
European Parliament President Martin Schulz told a news conference that he was surprised to learn at the last minute that Cameron was resisting a compromise agreement, concerned that a loose detail could curtail Britain's rebate.
"Prime Minister Cameron is never happy when we discuss the EU budget and today I got the impression that he wasn't happy at all," Schulz said.
Cameron - under pressure at home from euro-sceptics in rival parties and his own - was upset at changes to the way Britain's annual rebate is calculated that could see it shrink by about 10 percent, officials said.
At an EU summit in February, leaders struck a deal on the bloc's long-term budget that left untouched the rebate, worth some 3.5 billion euros and politically highly sensitive.
"It's absolutely essential that we stick to the deal we reached in February and that we protect the British rebate, and I'll make sure that we do that," Cameron told reporters at the start of the talks in Brussels.
Britain's rebate was created to offset the relatively lower share of cash the country got from EU agricultural and infrastructure funds compared with other countries.
But a change to how rural development funds are paid to newer EU member states that joined the bloc after 2004 - and which are not included in Britain's rebate calculation - threatened to shrink the payment, raising British hackles.
CELEBRATIONS ON HOLD
EU officials at the summit said there had never been any intention to row back on February's agreement, but warned that if Cameron dug his heels in, other leaders could follow suit, with the French and Italians particularly unhappy.
"This is a technical issue, and I have no doubt that we will find a technical solution. But if Britain politicizes the issue, it could become a problem," said one EU official involved in the talks.
French officials were angered by Cameron's stance, saying the issue had no place at Thursday's talks. But they said there were conflicting interpretations of how February's agreement affected Britain's rebate calculation.
If Britain gets its way, France would have to contribute an extra 50 million euros a year to help fill the hole in the budget, and other countries including Italy would also have to pay more, officials said.
The row soured the celebratory mood that greeted the announcement earlier in the day of a deal between negotiators from EU governments and the European Parliament.
But EU officials said they were confident a solution to Britain's objections would be found, opening the way for formal approval of the deal by governments and the parliament.
Under the deal, the figures agreed by leaders in February will remain unchanged. But the parliament won concessions that will allow unspent money to be transferred from one year to the next, rather than returning to national budgets as at present.
EU officials have said the change could allow spending to rise over the next seven-year period, despite the lower expenditure ceiling agreed by leaders, because actual spending will be closer to the upper limits than at present.
If approved, the deal will unlock 960 billion euros in funding for the next seven years, funding everything from roads and bridges in poorer eastern European member states to subsidies for farmers and fishermen in France and Spain.