Energy secretary Chris Huhne tells prime minister he had no authority from the coalition to veto revision of Lisbon treaty

David Cameron received a direct challenge in the cabinet on Tuesday over his handing of last week's EU negotiations in which he wielded a veto for the first time since Britain joined the EEC in 1973.

As the European commission accused the prime minister of wrecking an EU-wide agreement to solve the debt crisis, Chris Huhne, the energy secretary, highlighted deep Liberal Democrat unease by telling Cameron that he had no authority from the coalition to veto a revision of the Lisbon treaty.

In what was seen as a breach of convention, Huhne interrupted the prime minister twice as he summed up a lengthy discussion on Europe, in cabinet. Huhne, who challenged the chancellor, George Osborne, in cabinet last May about the aggressive tactics of the Tory-funded "no campaign" over the AV referendum, told the prime minister the position agreed by coalition ministers ahead of the summit had not envisaged the outcome.

The suggestion was that Huhne, a former MEP, who is deputy chair of the cabinet's European committee, believes Cameron had the authority to table four agreed demands for Britain's financial services – but that he had no authority from the coalition to wield a veto.

Cameron's negotiations in Brussels contrasted with Huhne's tactics at the climate change summit in Durban over the weekend. Huhne kept in contact with Greg Barker, his Tory ministerial colleague, when the negotiations prompted a change in the British position.

Cameron's contact with Nick Clegg, the deputy prime minister, was limited. Clegg, who persuaded Cameron to tone down his rhetoric in the Commons on Monday, will show that the coalition remains committed to a constructive relationship with the EU. He will attend a business breakfast arranged by the Business for New Europe group run by the arch pro-European networker Roland Rudd, and in January host a meeting of Liberal ministers from coalition governments around Europe.

But Clegg is facing a whispering campaign from senior Lib Dem figures who think he was duped by Cameron. Lib Dem peers roared with laughter on Monday when Lord Forsyth of Drumlean, the former Tory Scottish secretary, mocked Clegg for attacking Cameron on Sunday after initially welcoming the outcome of the summit negotiations. "May I congratulate the deputy prime minister on establishing a new principle that a weekend is a long time in politics," Forsyth asked.

One Lib Dem said: "Nick Clegg was duped by the prime minister. It was obvious that Downing Street and the Treasury were out to wreck these negotiations. People are asking what is the point of Clegg if he is out manoeuvred by the prime minister on Europe."

José Manuel Barroso, head of the European commission, gave vent to his anger over Cameron's tactics when he said the last-minute insistence that the UK banking sector be protected from yet-to-be-agreed rules on financial services, was unfortunate and made a deal among the 27 nations impossible.

The decision by Cameron prompted most other EU member states to agree to sign a new treaty to underpin tough fiscal rules for the eurozone.

Barroso told the European parliament in Strasbourg that he had tried to help Britain by tabling a clause which would have made clear that the fiscal compact should not undermine the single market nor distort competition. "Unfortunately, that compromise proved impossible, so it was not possible to have a solution that could allow all 27 member states to agree in the framework of current treaties."

The summit aimed to give the commission the right to declare a state to have an excessive deficit unless a qualified majority of countries vote against it.

His intervention came as the European Central Bank released figures showing that the deal last week had failed to quell the panic gripping continental banks.

Europe's banks parked more money at the ECB than they had at any other time this year, revealing a high degree of mistrust in the banking system. The ECB said banks left €346bn in its overnight accounts at a low 0.25% interest rate rather than lend it to other banks, indicating they were concerned they might not be paid back.

Analysts have become increasingly concerned that a second credit crunch is about to grip the European banking system and repeat the problems that brought the worldwide financial crisis of 2008.

All the big credit ratings agencies have warned that Europe's attempts to push through draconian spending cuts were undermining growth, and plans to cut debts could fail.

France is expected to be downgraded within days, while Italy remains on the sick list of indebted countries.

The International Monetary Fund said the Greek economy had "taken a turn for the worse" and the country was likely to suffer further economic pain following the imposition of spending cuts on health and social welfare budgets. It urged the Athens authorities to follow the path mapped out by the eurozone and the Washington-based international lender or risk a further deterioration in its financial position.

Rome, which faces a week of industrial unrest from workers in all parts of the economy, is braced for its debt costs to ratchet back towards the levels that forced Greece, Ireland and Portugal into seeking financial bailouts.

The rate on its benchmark 10-year bond stood at 6.75% after a steep rise on Monday. The rate zoomed past 8% last month, but has refused to fall back to more normal levels below 4%.

Strikers are expected to dominate the political scene as workers protest against austerity measures planned by the technocratic government of the former EU official Mario Monti.

Workers at Fiat in Turin and across Italy brought factories to a standstill. Monti also faced opposition from the allies of the former prime minister Silvio Berlusconi, the Northern League, which said preparations for a split with the south of Italy should include printing lira notes.

The League's leader, Umberto Bossi, said the dire situation in Italy, which has the third largest debts in the world after Japan and the US, meant the richer regions in the north might need to combine a split with the south with leaving the euro.

Meanwhile, Douglas Alexander, the shadow foreign secretary, will on Wednesday call on the prime minister to "make a bad situation better" by winning a place for Britain at negotiations among EU member states signing the new treaty. In a Guardian article, Alexander writes: "Having flounced out of the room last week only to have to start negotiating his way back in this week would be a personal embarrassment for the prime minister, but it would be in the best interests of Britain."

Greece slipping, warns IMF, page 23

Simon Jenkins, page 31