* EU budget to grow 2.9 pct
* Battle looming over long-term budget, Britain wants cuts
BRUSSELS, Dec 15 (Reuters) - European Union lawmakers approved the EU's 2011 budget on Wednesday ending a row over how much to increase spending, although a larger battle is set to erupt next year on calls to cut the long-term budget.
The European Parliament passed the budget worth 126.5 billion euros, 2.9 percent more than this year, after a long tussle with the EU's 27 member states.
Legislators had initially demanded a 6.2 percent rise, but backed down under pressure from governments, which said EU spending must not grow by so much when many countries are making deep cuts at home to ward off a sovereign debt crisis.
Negotiations between legislators and governments also stalled for weeks over demands for the parliament to have more power in determining future EU budget-making. Those demands were met only partially and in a non-binding way.
"Thanks to today's decision we will avoid a provisional budget, which would slow down the execution of EU policies, mainly agriculture and regional aid," Sidonia Jedrzejewska of Poland, the parliament's lead negotiator, said in a statement.
Without a budget deal, next year's spending would have been the same as in 2010 and disbursed in 12 equal instalments. Some programmes would have been denied funding, such as the EU's fledgling diplomatic service, new bodies to supervise financial markets, and a nuclear fusion project.
THE WORST IS YET TO COME
The parliament's vote settled a dispute over EU spending for now, but battle will be joined next year when governments open negotiations on the bloc's next long-term budget, which will run from 2014 and may last seven or 10 years.
"It is quite obvious that the minority of net-paying EU countries with eurosceptic governments want the EU budget to be cut at all costs," said Goran Farm, a Swedish socialist member of the European Parliament.
"This is only the first shot in a bigger battle to come. If the Council wants to slash the EU budget, we will face permanent trench warfare. We are not going to accept that."
Britain and the Netherlands have been the strongest advocates of EU budget cuts.
An EU diplomat said Britain would like the see long-term spending frozen at the current level in real terms, which would mean cuts when taking into account economic growth and inflation.
"Clearly our objective will be to push for the same restraint on the budget for the next financial perspective that we've been pushing for the budget next year," said British Prime Minister David Cameron's budget spokesman.
Britain's stance worries poorer EU countries from central and eastern Europe -- the main beneficiaries of the bloc's regional aid funds, which finance road construction, environmental clean-up, job training and other projects.
The EU's costly farm subsidies will be another contentious issue in the debate. They will be defended by France, their major recipient. Britain is also set to defend its rebate from EU coffers won by former prime minister Margaret Thatcher in 1984.
(Additional reporting by Keith Weir in London and Paul Taylor in Paris)
(Reporting by Marcin Grajewski; editing by Rex Merrifield, Ron Askew)