Germany has warned David Cameron that crucial parts of his template for reshaping Britain's membership of the European Union are 'not up for negotiation'.

In a blow for the Prime Minister, Chancellor Angela Merkel said it would be 'very challenging' to meet his demands - and explicitly ruled out any compromises on migrant benefits and freedom of movement.

Merkel drew a red line under the proposals in an address to the Bundestag parliament on Wednesday.

Red lines: Angela Merkel said that freedom of movement and curbing migrant benefits are non-negotiable in David Cameron's fraught renegotiation of Britain's EU membership

Despite praising the UK as a 'natural ally', Merkel said she would not budge on free movement - which allows EU citizens to live and work anywhere in the union - and has hobbled the Prime Minister's ability to control UK immigration.

Cameron is not seeking to throw out free movement altogether - but has pledged to tackle 'abuses' in the system.

She also defended the EU tenet of non-discrimination, which allows migrants equal access to the UK benefits system.

Referring to both, she said: 'These principles are not up for negotiation', and was loudly applauded by Germany MPs.

Merkel had earlier said that Germany will be 'extremely helpful' in Cameron's mission to secure a new deal for Britain ahead of the referendum on EU membership.

Sticky situation: Cameron, pictured today at PMQs in the Commons, has been trying to drum up support for his negotiation project

Praising the UK, she said: 'Great Britain is, for me, a country that in many European policy areas pursues similar goals to us in Germany. It is on many questions a natural ally.'

'As a permanent member of the United Nations Security Council, Great Britain contributes significantly to the European Union's importance in the world.

'With Europe facing demands like never before, that is of enormous importance.' Germany is not a permanent member.

Although she acknowledged any negotiation would be 'very challenging', Merkel said that other disgruntled nations had been pleased before and is 'confident we can do it this time'.

Cameron has spent the months since his re-election touring Europe and meeting with leaders in the hope of securing a deal with which to persuade the public to stay when the referendum is held.

Fans: MPs in the German Bundestag, pictured above during her address today, applauded Merkel's defence of the EU principles

The exact date has not yet been announced, but the Government has promised to hold it before the end of 2017.

Cameron has set out four broad objectives for his renegotiation.

The Prime Minister has said he wants to protect the UK's place in Europe's single market, instill 'competitiveness' in the EU, exempt the UK from the principle of 'ever-closer union' and 'tackle abuses' in freedom of movement.