British Prime Minister Theresa May says she would delay Brexit only in "exceptional circumstances."
The European Commission said on Wednesday that it wants a post-Brexit transition period, during which Britain must continue to obey EU rules, to finish at the end of 2020.
Chief EU Brexit negotiator Michel Barnier said that "all EU policies will still apply" during the transition to a new relationship between London and Brussels after Britain leaves the bloc in March 2019.
British Prime Minister Theresa May, who headed off a new parliamentary rebellion over Brexit as Barnier spoke, faces a fresh row over the proposed EU timeline as she has called for a transition period that is three months longer.
The development comes after EU leaders signed off last week on the first stage of Brexit negotiations, ending more than a year of stalemate over Britain's bill for leaving the bloc, as well as the fate of the Irish border and EU expatriates.
"From our point of view the logical end should be December 21, 2020," Barnier said at a press conference in Brussels as he presented the new Brexit negotiating guidelines produced by the commission, the EU's executive arm.
This would coincide with the end of the EU's seven-year budget for 2014 to 2020, he said, avoiding potentially thorny negotiations on how much Britain should pay for the extra few months in 2021 that would be necessary under May's proposal.
Talks on the post-Brexit transition period are to start in January, while negotiations on the future relationship between Britain and the EU, including steps towards an eventual trade deal, are due to begin in March.
The EU has said it wants to have a free trade deal with Britain ready to go at the start of 2021, as soon as the transition ends.
"The transition period is useful and will enable Britain to get prepared for the kind of challenges that they will have to face, and to prepare also for the complications of the new relationship," Barnier said.
But the veteran French politician warned that Britain would have to stick to EU laws throughout the transition period, even new ones passed after it had left the bloc, and obey rules on free movement.
"This cannot be an a la carte transition period -- all EU policies will still apply," Barnier said. "The UK will keep all of the benefits, but also all of the obligations and duties of the single market, the customs union and our common policies."
Eurosceptic hardliners in May's Conservative party have insisted that Britain should take back control of its borders and no longer be subject to the European Court of Justice from March 2019 onwards.
Barnier appeared to throw the Brexiteers a bone on one of their key issues, however, saying that while Britain would be excluded from talks on fishing quotas during the transition, there would be "specific procedural arrangements" to give it a voice.
The next phase comes as Barnier ruffled feathers in London on Tuesday with a warning that any ties after Brexit would inevitably result in Britain's financial companies losing full rights to trade across the bloc.
IMF chief Christine Lagarde said in London on Wednesday that Britain's economy was "losing out" as a result of last year's vote to leave the EU, but that any post-Brexit trade deal could help ease the pain.
But May faces difficulties merely getting Brexit through parliament, after suffering a humiliating defeat last week by pro-European members of her own Conservative party, who voted to ensure parliament has the final say on any divorce deal with Brussels.
May told parliament that any delay to Britain's departure from the EU "would only be in extremely exceptional circumstances and it would only be for the shortest possible time."
May has already accepted in theory that the European Court of Justice will continue to have jurisdiction and that London will have no legal basis to conclude its own trade deals during transition the period.
Influential pro-Brexit lawmaker Jacob Rees-Mogg criticised these conditions as "rather hostile", leaving the UK "no more than a vassal state, a colony, a serf of the European Union".