Britain will not try to stop other European Union countries from using EU institutions to enforce tighter fiscal rules for the euro zone, Deputy Prime Minister Nick Clegg was quoted on Friday as saying.

The Guardian quoted Clegg as telling it in an interview that Britain would not block or legally challenge the 26 nations that have signed up to the new pact from using institutions such as the European Commission or the European Court of Justice.

Britain, which opted out of an agreement at an EU summit last week to increase fiscal integration among euro zone countries, initially signalled it could oppose any steps to use EU institutions to enforce the pact.

Prime Minister David Cameron later softened that stance, saying he would look at proposals with an open mind.

Clegg went further, saying: We have signalled we are happy for them to use EU institutions.

Asked if there was absolute clarity in Britain that the new inter-governmental body overseeing euro discipline could use EU institutions, Clegg said: Yes, yes.

The decision by Cameron, a eurosceptic Conservative, to veto an EU treaty enshrining closer euro zone integration, left Britain isolated and led to a rift with Clegg's pro-European Liberal Democrats, junior partner in the coalition government.

Clegg said after the EU summit he was bitterly disappointed with its outcome and pledged to work to build bridges with Britain's EU partners. Britain is not a member of the 17-nation euro zone.

In another sign that positions are becoming more conciliatory, Britain will be allowed to follow discussions on the new agreement as an observer, EU officials said on Friday.

As the dust settles on last week's summit, the government over the past few days has already taken some very big steps to re-engage, get back in the saddle and get back into the mainstream of the debate, Clegg said.

Clegg's emphasis on engagement contrasted with that of a British government spokesman who said on Thursday that Britain's presence at the new group's talks meant 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.

In the interview, Clegg also accused British eurosceptics of stoking xenophobia and chauvinism by indulging in the politics of grievance.

(Reporting by Adrian Croft; Editing by Tim Pearce)