The continuing stand-off between the eurozone and Greece over its debt could lead to a "full blown crisis", George Osborne has warned.
The Chancellor's comments come as eurozone finance ministers prepare for crunch talks later on whether to extend the EU loan programme to Greece which wants an extra six months but without austerity conditions.
Mr Osborne said: "What you see now in this stand-off between the eurozone and Greece is the risk of a full blown crisis which would do real damage to the European economy - and is a risk to Britain.
"We need the eurozone to find a common solution and here at home we need to go on working through our economic plan which has kept us safe".
Greece says the EU has "just two choices" when it comes to Athens' request - accept it or reject it.
But Germany has already rejected it, saying it was "no substantial proposal for a solution" and "does not meet the criteria" laid out by the ministers.
The office of the German finance minister Wolfgang Schaeuble issued the terse response just hours after Greece formally lodged its bid for a half-year deal to effectively replace its bailout, which is due to expire at the end of the month.
German finance ministry spokesman Martin Jaeger added that it amounted to a request "for bridge financing without fulfilling the demands of the (bailout) programme".
But after the snub, a Greek government source said: "The eurogroup has just two choices. To accept or reject the Greek request. We will now discover who wants to find a solution, and who does not."
The country's new anti-austerity government is seeking a compromise to break the deadlock with European creditors, especially Germany, as it runs the risk of running out of cash and defaulting on its debts without agreement.
It has ruled out the prospect of any deal under the terms of its previous rescue because of its mandate from the Greek people who swept the anti-austerity Syriza party to power last month.
The details of the Greek request were not made public but the Reuters news agency published a document it had seen which suggested Greece had watered down some of its previous demands.
The letter, purportedly written by Greek finance minister Yanis Varoufakis, pledged to honour all Greek debts and not take unilateral action that would undermine agreed fiscal targets.
The government of Alexis Tsipras blames the conditions attached to its bailout of hampering the country's recovery and leading to a deterioration of living standards.
Unemployment remains at more than 25%.
On Monday, the government rejected a plan to extend its current €240bn (£178bn) bailout deal, describing it as absurd.
Eurozone finance ministers had given Greece until Friday to request an extension of its current austerity and reform programme.
Germany has been particularly vocal in insisting the country sticks to the terms of its commitments.
The formal Greek request was submitted after the European Central Bank (ECB) agreed to increase its emergency funding to Greek banks amid a capital flight from the country.
Depositors are fearful the lack of a deal will force Greece from the single currency and back to the drachma, representing a significant devaluation.
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