German parliament group warns Britain against "blackmail" on EU
* Britain wants to renegotiate EU ties, repatriate powers
* PM Cameron has threatened to use veto on EU
* German parliament Europe committee criticises plan
LONDON, Jan 10 (Reuters) - The head of the German parliament's influential European Union Affairs Committee warned Britain on Thursday against trying to "blackmail" other countries in its push to fashion a new relationship with Europe.
Gunther Krichbaum, an ally of Chancellor Angela Merkel, also said British Prime Minister David Cameron risked isolating the UK and paralysing European integration if he held a referendum on relations with the European Union.
The comments were the second significant foreign intervention over Cameron's EU strategy in two days after the United States on Wednesday said it wanted Britain to remain in the 27-member bloc.
Cameron is expected to deliver a major speech on Britain's EU ties later this month and is already under intense pressure from his own Conservative party and increasingly eurosceptic voters to repatriate powers from Brussels or leave the EU entirely.
He has repeatedly threatened to veto EU initiatives he does not see as being in Britain's interest and has hinted he could use such threats as a bargaining chip to achieve his aims.
"You cannot create a political future if you are blackmailing other states. That will not help Britain. It needs a Europe that is stable. It needs markets that are functioning," said Krichbaum, leading a delegation from his committee on a two-day visit to Britain.
"In the broader sense of negotiating a new treaty, it is neither wise nor useful to open Pandora's box, because every state in the EU, not just Britain, would again try to get their interests in," Krichbaum added.
Cameron says he wants Britain to remain in the bloc, a major trading partner, but insists he is entitled to renegotiate Britain's position given that other EU states are redefining ties as they seek to integrate in response to the eurozone debt crisis.
Asked on Sunday whether this meant that if he did not succeed in repatriating powers he would block other EU reforms, Cameron said it was a "perfectly acceptable argument" to say that, as the rest of the EU makes changes, Britain would like changes too.
Cameron hopes to present a renegotiated deal to the British public to seek their "fresh consent", probably in a referendum after the next general election in 2015.
Krichbaum criticised the strategy. "There is certainly a risk that this question could paralyse efforts for a better Europe and deeper integration. Britain would risk being isolated. That cannot be in Britain's interests," he said.
The comment echoed a warning from the United States on Wednesday that a vote on EU membership risked turning the country "inwards".
Krichbaum's committee has held talks with British lawmakers, and is visiting London to gauge the mood on Europe and make clear it thinks Britain is better off in the EU.
Committee members said it would be more difficult for Britain to negotiate a good trade deal with the United States outside the EU. Britain is currently pushing for an EU-U.S. free trade deal.
"I sometimes hear the sentiment that even if Britain left the EU it could still easily have free trade agreements with other states," Krichbaum said.
"I would be cautious in this regard: when the whole EU negotiates a free trade agreement, its position is much more powerful than if only one single country negotiates," he added.
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