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The European Parliament has approved a revised EU budget for 2011 which includes a 2.9% increase in spending.

The total budget is set at 126.5bn euros (£107bn).

A compromise was hammered out after the member states' governments rejected a demand from MEPs for a 6% increase. MEPs also wanted a bigger say in the EU's multi-year budget for 2014-2020.

UK Prime Minister David Cameron was among those who said an increase above 2.9% would be unacceptable.

The new draft budget for 2011, revised by the European Commission after negotiations had broken down, was approved by 508 votes to 141 in the Strasbourg assembly.

Green MEPs and Eurosceptic groups voted against the budget plan.

One of the biggest budget increases is 100m euros in extra funding for the Palestinians and the Middle East peace process.

MEPs and the EU governments, which are collectively called the Council, have not yet agreed on a contingency fund to deal with emergencies, nor on financing of the Iter nuclear fusion project.

But MEPs were satisfied with the Council's commitment to involve them in future budget discussions. Co-decision on the EU budget is one of the innovations in the Lisbon Treaty, which took effect last December.

MEPs also won a pledge by the European Commission to present a formal proposal by mid-2011 on "own resources" - ways in which the EU can boost its own finances. It is a controversial issue, as many governments and Eurosceptic politicians are wary of moves towards "EU taxes".