David Cameron has said his party's MEPs will form a new grouping in the Brussels parliament with a right wing Czech party.
However the deal will not take effect until 2009, a sign of the problems the Conservative leader has had in implementing his pledge that Tory MEPs would leave their current European People's Party grouping.
In November, Cameron had said that delivering on the commitment would be "a matter of months not years".
Details of the agreement were announced when Cameron held a joint press conference with Mirek Topolanek, Czech prime minister designate and leader of the Civic Democratic Party (ODS).
The new grouping will be called the Movement for European Reform, signalling its focus on opposing developments towards a 'federal superstate'.
A joint declaration between the two leaders says that their group will be "dedicated to the ideals of a more modern, flexible and decentralised European Union, ready to face the challenges of the 21st century".
Cameron said that while he agreed with the EPP on free markets and deregulation, "we don't share their views about the future development of Europe".
"It is time to drive forward a new agenda in Europe - looking outwards to the world, flexible, competitive - ready to face the challenges of globalisation in the 21st century," the Conservative leader added.
"We will be a strong new voice for change, optimism and hope. We are a new generation.
"We have no time for the culture of hopelessness that has plagued the way the EU addresses the big global challenges we face.
"It's because we want to see a future for the EU and believe in a strong Europe that we want to make the EU confront its failings.
"We refuse to accept failure as Tony Blair has. We want to win the arguments, build support and get things done.
"That is why we are starting today with the creation of our new group and our new movement.
"We say to the moderate mainstream majority in Europe: come and join us. We have a future to fight for."
Frontbencher Cheryl Gillan said she welcomed the plan.
"It shows that in David Cameron we have a leader who keeps his word and who is starting something new and exciting in Europe," she said.
But Robert Oulds, director of the anti-EU Bruges Group, said: "Failing to keep promises is hardly the way to win over voters that have been turned off politics by Tony Blair.
"We know Tony Blair does not keep his pledges, but to restore confidence in the political system Conservatives must."
And Europe minister Geoff Hoon said the announcement "confirms the Tories are more marginalised and isolated in Europe than ever".
"The Tories now find themselves in the worst of all worlds," he said. "They are completely marginalised and without influence within the EPP, and unable to join a new group outside it."
Norman Lamb, chief of staff to Liberal Democrat leader Sir Menzies Campbell, said: "David Cameron has failed to deliver on the one specific commitment he made during his leadership campaign.
"Once again, the Tories are hopelessly divided over Europe.
"If David Cameron can't keep a promise about how he runs his own party, how can we trust him to keep any promises on how he would run the country?"
The pledge has caused long running problems for Cameron since he made it in a bid to secure the support of right-wingers during the leadership election.
It has split his party's MEPs, with some demanding immediate withdrawal and others insisting they honour a manifesto pledge to remain part of the EPP.
And hopes for a wider alliance in Brussels were scuppered earlier this year when Topolanek attacked the Polish Law and Justice party as "dangerous populists".
Shadow foreign secretary William Hague, who had been tasked with finding a way of delivering on Cameron's pledge, had hoped the Law and Justice party would join the new grouping.
German leader Angela Merkel has warned the Tory chief that the EPP should remain the basis "for our bilateral dialogue as partners".
And French minister and likely presidential candidate Nicolas Sarkozy was said to have told Cameron earlier this year that he was "a weak man" to have made the commitment.
13 July 2006