EU's Tusk to present new proposal in Britain talks on Tuesday

* Tusk tweets that good progress "but still outstanding issues"

* Tusk met Cameron on Sunday for talks over reforms

* British PM promises in/out referendum by end 2017 (Recasts with Tusk)

By Gabriela Baczynska and Elizabeth Piper

BRUSSELS/LONDON Feb 1 (Reuters) - The head of the European Council will on Tuesday present a "new settlement" proposal in talks with Britain on reforms aimed at keeping the country in the 28-nation bloc.

The move came after British Prime Minister David Cameron on Sunday met Council President Donald Tusk, who chairs the meetings of EU states' leaders and plays a key role in seeking a compromise around London's demands for a better membership deal.

"Tomorrow around noon I will table proposal for a new settlement for #UKinEU. Good progress last 24 hours but still outstanding issues," Tusk said on Twitter (Xetra: A1W6XZ - news) .

Cameron has promised to reform Britain's ties with the EU and hold a public vote on EU membership before the end of 2017.

Among the most controversial of his demands is stronger powers to curb immigration, including barring EU immigrants from in-work benefits for at least their first four years in Britain.

Cameron and Tusk left their dinner on Sunday saying they had failed to reach a deal and eurosceptic British lawmakers said the divergence was being played up to make an eventual agreement seem like a triumph.

The two sides have indicated they want a deal agreed by EU leaders at their Brussels summit in mid-February, enabling Cameron to call a referendum on EU membership as early as June.

Cameron's spokeswoman earlier told reporters: "There is more work to do in all four areas, more work in some areas than in others."

But she said a "significant" agreement had been reached with the European Commission, the EU executive, allowing Britain to suspend some payments to migrants from the bloc for four years immediately after the referendum.

That would go some way to appeasing critics of EU membership in Cameron's party, but a spokesman for the Commission warned it would need to be agreed by the leaders of all 28 countries.

"It (Other OTC: ITGL - news) is not enough for the Commission and Council lawyers to agree; this is a process that is run 'at 28'," said Margaritis Schinas.

HIGH STAKES

Cameron has demanded reform in three other areas. He wants Britain excluded from the EU goal of "ever closer union" and protected against moves by the 19 countries that share the euro currency to impose rules by majority vote on London. He also seeks to empower groups of national parliaments to block EU legislation.

The stakes are high. The referendum will not only determine Britain's future role in world trade and affairs, but also shape the European Union, which has struggled to maintain unity over migration and financial crises, by ripping away its second-largest economy and one of its two main military powers.

Some eurosceptics have branded the negotiation a waste of time.

"Don't be fooled, again, by Cameron's ongoing charade," Paul Nuttall, deputy leader of the UK Independence Party, said in a statement.

There are plenty of areas where EU countries have concerns about Britain's demands and, if and when agreement is found, there will still be tussles over some details.

Still up for grabs is how long the so-called "emergency brake" on welfare payments to migrants will be in force, how many countries would have to agree in order to block EU legislation, and how to enforce protection for London's financial industry, among others.

(Editing by Kevin Liffey and Alison Williams)