German Chancellor Angela Merkel has warned British Prime Minister David Cameron she would be prepared to see Britain leave the EU rather than give in to his demands for new quotas on migrant workers coming to the UK.
Ms Merkel is understood to have told Mr Cameron he is near a "point of no return", where his demands for changes in Britain's EU relationship are not acceptable to Germany.
Her comments come ahead of a key speech in which Mr Cameron will spell out his plans for EU Labour market reform as part of his proposed renegotiation of Britain's membership.
Last month, Downing Street sources suggested Mr Cameron was looking at a system to control EU migration by capping the national insurance numbers issued to foreign workers.
But EC President Jose Barroso, suggested such a proposal would be incompatible with the principle of freedom of movement which was an "essential" part of the union. This is a sentiment shared by Ms Merkel.
Sources in Berlin said if Mr Cameron insisted on limiting the number of immigrants from other EU states, "there will be no going back".
"Should Cameron persist [in this plan], Chancellor Angela Merkel would abandon her efforts to keep Britain in the EU."
Speaking after a meeting of the European Council last month, Ms Merkel said Germany would not interfere with the basic principle of freedom of movement, but emphasised: "That doesn't mean that there aren't various problems."