Britain must not take advantage of the winding down of operations in Afghanistan to trim spending on defence, the head of Nato has warned.
Anders Fogh Rasmussen said European powers risked being marginalised unless they invested in more military capacity.
The secretary general also indicated that the UK's nuclear deterrent - which the Liberal Democrats would like to see downgraded - remains "crucial" to the alliance.
Spending levels on defence have been a long-standing source of tension between Nato members. While Britain has maintained budgets above the recommended 'benchmark' of 2% of GDP, other nations such as Germany and France have not. The shortfall has left the US shouldering the majority of the burden in the alliance's operations.
Mr Rasmussen said the action in Libya had demonstrated that Nato's European members needed more drones, heavy transport vehicles, and air-to-air refuelling capability. He also suggested that more money should be put in to protecting against cyber attacks.
"The resources that will be freed up in Afghanistan should be used to invest in modern military cababilities," he said. "I am very concerned about the declining defence budgets. First and foremost because if we are to ensure the effective protection of our population and societies in the future, we also need a sufficient amount of investment in modern military capabilities.
"But this is also about the strategic role of Europe on the world stage. If the current trend continues Europe will not be able to participate in international crisis management in the future - and the vaccum will be filled by the emerging powers that are investing more and more in defence and security. So a lot is at stake, particularly for the European allies and I urge them to increase defence investment as our economies recover."
Mr Rasmussen warned that much of the co-operation built up during the long operation in Afghanistan could be lost. "In Afghanistan we learned how to work and operate together in the real world," he said. "But as we draw down our operations in Afghanistan we have to step up our activities with exercises, training, education, to maintain that ability to work and operate together and further develop it."
Asked about suggestions that Britain could downgrade its nuclear deterrent, Mr Rasmussen stressed its continuing importance. "It is crucial. We have clearly stated in our strategic concept that we continue to pursue defence policies based on an appropriate mix of nuclear and conventional forces," he said. "I am not going to interfere with national decisions. I am sure that the British government will live up to all obligations within Nato."
Despite the civilian death toll in Afghanistan rising by a quarter in the first half of this year, the secretary general expressed faith that the country would remain stable after Nato troops pulled out. "I am confident that the Afghan security forces will be able to take full responsibility for the security all over Afghanistan by the end of 2014," he said. "We continue to train and educate and assist the Afghan security forces. I think they have dealt with recent security incidents in a very professional manner, and their capability will continue to increase."