Mr Hain is a vigorous campaigner for the euro

In an interview with the Financial Times, Mr Hain acknowledges that Dr Kelly's death has dominated the political agenda recently.

But he says Mr Blair - who is to hold his monthly news conference on Wednesday - should not be distracted from his long term aim of joining the single currency.

Lord Hutton will open his inquiry into the death of Iraq weapons expert Dr Kelly on Friday.

Mr Hain said: "Despite the important attention that events of the past few weeks have commanded and whatever the outcome of Lord Hutton's inquiry strategically it is essential we do not lose momentum in ensuring Britain remains, and indeed enhances, its role as a leading European power."

Mr Blair's news conference is likely to be dominated by questions over Dr Kelly's death.

When the crunch comes and people confront the hard choice of being at the heart of Europe or being isolated ... people overwhelmingly vote for a pro-euro position Peter Hain

But with government delivery unit chief Michael Barber expected to give a presentation on efforts to boost schools and hospitals, the prime minister is expected to focus on public service reform.

Mr Hain said: "When the pro-European argument is put to the test and this applies to the pro-euro argument too...it wins...

"When the crunch comes and people confront the hard choice of being at the heart of Europe or being isolated ... people overwhelmingly vote for a pro-euro position."

But Labour MP Gwyneth Dunwoody said the UK economy was outperforming the eurozone.

"Far from being left behind and "at the back of the Grid" as Peter Hain suggests, Britain is in the fast lane," she said.

"We do not need to join the euro to be constructive and influential players in Europe and we should have the confidence to base our decisions on the national economic interest, rather than giving in to the feeble insecurity that characterises Peter Hain's arguments."

The Kelly affair - and questions over the search for weapons of mass destruction in Iraq - continues to dominate the political agenda, however.

Dr Kelly was found dead in woods near his Oxfordshire home on 18 July.

'Obsession'

The scientist apparently killed himself after coming under intense scrutiny following BBC reports that Iraqi weapons intelligence had been exaggerated by the government.

Defence Secretary Geoff Hoon and the prime minister have come under pressure over the way Dr Kelly's name emerged as the possible source for the BBC story.

On Monday, Downing Street brushed away fresh criticism of Mr Blair from ex-cabinet minister Clare Short.

The former international development secretary said the death of Dr Kelly had become a symbol of the government's "obsession with spin".

But Mr Blair's official spokesman said there was nothing new in Ms Short's criticism.

Ms Short alleged in the Independent newspaper that normal Whitehall procedures had been breached in the way Dr Kelly was unmasked, triggering the events leading to his apparent suicide, she said.

'Deceit'

"We must deal with Dr Kelly, and the abuse of power that helped drive him to his death.

"But we must also deal with the questions of how we went to war in Iraq and how much half-truth and deceit there was on the way."

Mr Blair's spokesman said few people would be surprised by Ms Short's latest attack, saying she had said similar things before.

Another former cabinet minister, Robin Cook, continued his own criticism of the government on Monday, again questioning intelligence suggesting that Iraq tried to buy uranium from Niger.

He said it was "baffling" that the government continued to stand by the claim when it was being questioned elsewhere.

He told BBC Radio 4's The World At One programme: "There is nobody else out there in the world who believes what the British government claims to believe, that Saddam was trying to buy uranium from Niger."