Despite blocking an EU treaty change to enshrine euro zone fiscal controls, Britain has been invited to participate in talks on a pact with the other 26 members of the European Union, the government said on Thursday.

At a summit in Brussels last week, Prime Minister David Cameron decided against joining the other countries in backing changes to the EU's fundamental law, leaving them to pursue an intergovernmental agreement instead.

But diplomats are anxious to keep British goodwill because the new fiscal agreement may need to make use of institutions created for the entire 27-country bloc such as the European Commission, for example in monitoring the euro zone.

The Council has now proposed an ad hoc grouping of representatives from member states and the EU institutions to take forward this work and we will participate in those discussions, said a British government spokesman.

This means that we will be at the table when the use of the EU institutions is discussed, giving us the opportunity to raise any concerns and to support the role of the institutions in safeguarding the single market.

However, it was unclear what status Britain, which said it had not received adequate safeguards for its financial services industry at the Brussels summit, would enjoy in the talks.

One senior EU diplomat cautioned that no decision had been made in this regard. Britain is asking for an observer status, he said. But there is no agreement. There is no decision on it at the moment.

Dutch Prime Minister Mark Rutte told his parliament: My goal is to keep Britain involved. They are participating as an observer, that is what we are working on now. They will be an observer when drawing up the agreements between the 26 (EU countries), the 17-plus (countries).

But a British government spokesman, asked about observer status, said: We wouldn't put it like that.

This is not some new organisation - it's an ad hoc grouping of officials that will meet to prepare an international agreement on fiscal stability amongst the euro zone and other countries who choose to join.

Cameron has been speaking to other EU leaders in a bid to avoid isolation, and on Thursday called European Council President Herman Van Rompuy and Danish Prime Minister Helle Thorning-Schmidt, who will take over the rotating EU presidency in January, a spokesperson for Cameron said.

The prime minister reiterated that he wants the new fiscal agreement to succeed, and to find the right way forward that ensures the EU institutions fulfil their role as guardian of the EU Treaty on issues such as the single market, the spokesperson said. That's why we have today agreed to participate in technical discussions to take forward this work.

Cameron said a push for competitiveness, jobs and growth was

an essential part of a comprehensive solution to the euro zone crisis, alongside the fiscal agreement.

Although 26 countries were broadly in favour of the fiscal agreement, with so many details yet to be finalised it is by no means certain that all will eventually sign up to it.

(Reporting by Luke Baker, John O'Donnell, Michael Holden; Additional reporting by Gilbert Kreijger in Amsterdam; Writing by John O'Donnell; Editing by Kevin Liffey)