European Union leaders agreed on Wednesday to send back to the drawing board a draft deregulation law in a tactical retreat to save a knife-edge French referendum of the EU constitution.

Chirac, who argues the law would bring unbridled competition into the services sector from low-cost east European countries, declared he had all but buried the bill.

But Blair said the services directive was alive and well.

"There will be some amendments but they shouldn't touch on the essential of the directive," Blair told parliament, saying the bill would go through its normal legislative process.