David Cameron's hopes of forming a coalition with the Liberal Democrats were dramatically undermined last night by the leaking of a top-secret letter outlining the hardline Eurosceptic stance he and William Hague planned to adopt in government.

The document, obtained by the Observer, is headed "draft letter from Foreign Secretary to Prime Minister" and was written last week. It assumed an outright Tory victory and spelt out how Hague intended to adopt a tough approach to Europe at a meeting of EU foreign ministers in Brussels tomorrow.

In the letter, compiled by civil servants but written in the first person, Hague tells Cameron how his message would be that "the British relationship with the EU has changed with our election" to one firmly against any further integration.

Exposing the massive gulf between Liberal Democrat leader Nick Clegg and the Conservative leadership on Europe, Hague says he would demand the right to repatriate powers over criminal justice as well as social and employment policy during the first term of a Tory government – demands many EU leaders say they would resist.

Hague planned to tell his EU counterparts: "Rest assured that we seek engagement, not confrontation. But our aim is to achieve these commitments during this parliament." He would also tell his first foreign ministers' meeting "we will never join the euro" and conclude: "You will find us firm but fair, playing a leading role, fighting our corner, practical and straight-talking."

Last night the Tories said they had no knowledge of the letter. But the Observer understands it was drawn up on the basis of detailed briefings between senior civil servants and Hague. The document came to light as Clegg, a strong pro-European, yesterday met his MPs and senior party figures to discuss a possible coalition with the Tories, who emerged from Thursday's general election with the largest number of seats but short of an overall majority.

Cameron and Clegg held face-to-face talks late yesterday as they continued their attempts to thrash out a power-sharing deal. A senior Conservative party spokeswoman said the talks were "constructive and amicable". The 70-minute meeting took place at Admiralty House in Whitehall. A Lib Dem spokesman also described the discussions as "constructive and amicable".

Tory and Lib Dem sources said last night that discussions would not conclude until the beginning of the coming week at the earliest. An emergency meeting of the 1922 committee of Tory backbenchers will be held tomorrow to discuss the possible coalition. Today, Hague, Oliver Letwin and George Osborne will resume talks with the Lib Dems' Vince Cable, Chris Huhne and David Laws.

But the stark language used in the letter is bound to alarm Clegg, who has been savage in his criticism of the Conservatives' attitude to Europe which he believes is rooted in the past and will limit Britain's ability to fight cross-border crime and meet the environmental challenges of the 21st century.

The document will also be seen by Lib Dem MPs and the party's rank and file as evidence that their pro-Europeanism would be compromised by linking up with the Tories. A Lib Dem spokesman said the party was strongly pro-European, but would not be drawn on the document.

Yesterday Cameron came under pressure from senior figures in his own party not to give in to Clegg's demands by watering down Conservative manifesto commitments. Shadow defence secretary Liam Fox warned that a Tory government could not be "held to ransom" by Lib Dems demanding proportional representation.

Clegg may also face opposition from within his party to any attempt to form a coalition with the Tories, particularly on economic issues.

Yesterday the Social Liberal Forum, which represents left-leaning Lib Dems and includes a third of the party's MPs, issued a set of "red lines" which it said the party must not cross, including any measure that would increase the gap between the rich and poor – ruling out supporting the Tory pledge to cut inheritance tax. Three other red lines were any suggestion of cuts to frontline services in the current financial year, any worsening treatment of asylum seekers and any watering-down of the human rights act.

Meanwhile, Gordon Brown and his closest advisers were working on how to expand their counter-offer to the Lib Dems, including a referendum on changes to the voting system. Senior officials said Labour was planning to draw up a formal "coalition contract" – as happens in Germany – that would bind the Lib Dems and other smaller parties into a deal if the Tory discussions with the Lib Dems were to fail.

Most Labour ministers now believe Brown would have to step down before Clegg would consider a pact, though senior government insiders insisted this was not being discussed as an option.

One re-elected Labour MP, John Mann, of Bassetlaw, called on Brown to step down as Labour leader, claiming that the party would have influence on the outcome of the current negotiations only if Brown agreed to give up the leadership.

"Brown should not lead Labour into any future election and he should stand down before the next Labour party conference," he said. "Gordon Brown's continuation as leader rules out the credibility of a Lib-Lab pact that has to prioritise the modernisation and reform of the antiquated UK political systems."

• On Sunday, the Foreign Office released a statement in response to the Observer's story. A spokesman said: "This is a draft paper, drawn up by Foreign Office officials on their own initiative as part of the civil service's normal and private contingency planning for a possible Conservative government. It was produced in line with cross-Whitehall guidelines for such contingency planning.

"The document was not shown to any representative of the Conservative

party or anyone else outside the civil service.

"The permanent undersecretary at the FCO, Sir Peter Ricketts, has

immediately opened a enquiry into this regrettable and unprofessional

leak of a classified internal draft document."