Moves within national boundaries will not be affected by plans to amend the transfer system.

However, clubs will have to draw up radically different contracts that give players the right to break them if they want to move abroad, the European Commission said yesterday in a clear indication that it is softening its stance on the issue.

The ruling will not affect, for instance, transfers between British clubs like Rio Ferdinand's £18 million move from West Ham to Leeds or the £12 million deal which took Tore Andre Flo to Rangers. Ferdinand will make his Leeds debut at Leicester today.

But Viviane Reding, the EC commissioner responsible for sport who is spearheading the drive to overhaul the current system, said that there has been a lot of confusion over the commission's plans and that it had no intention of banning transfer fees or amending the movement of players within their own country.

Reding, who was in London to meet the British sports minister Kate Hoey and Chris Smith, who is responsible for sport at cabinet level, said: "We don't want to tackle national transfer rules and the national transfer system, which means that if there's the transfer of a player between British clubs then that's none of our business. It's only international transfers that are causing us problems."

Under EC proposals, players would have the right to terminate a contract, provided they give adequate notice, if they want to move to a club outside the country they are playing in. Transfer fees would not be totally wiped out but football authorities across the Continent are concerned that they could be based solely on the remaining length of a player's contract, costing clubs millions in lost revenue.

Reding insisted yesterday that the transfer value of a player would be calculated by taking into account the amount of time a club has spent on his training, the market value of the player and the remainder of the contract.

Her comments are the clearest indications to date that the EC is watering down its views following weeks of pressure from politicians and football officials that abolishing transfer fees and giving players complete freedom of movement would irreparably damage the game.

Reding said that the current system impeded the free movement of players across Europe and that this contravened the Treaty of Rome, which gives all citizens of the Continent the right to work where they want in Europe. She added that the EC objected to the current system on two fundamental grounds: first, that a player can be prevented by FIFA from breaking his contract unilaterally and changing clubs; and second that there is an obligation on the new club to pay a transfer fee to the old one even when a player's contract has been terminated by mutual consent.

"The treaty (of Rome) obliges us to act. At the moment a player's freedom of movement across Europe is being restricted . . . This cannot be allowed to continue," she said.

Reding insisted that the nature of a footballer's contract would have to change and include areas such as the required period of notice prior to resignation. "All conditions should be included in a player's contract, giving them the right to terminate them," she said. "There will continue to be transfers and transfer payments but the conditions under which those are made are going to change."

Those comments suggest the EC and football authorities are moving closer to agreement, particularly over the importance of transfer fees so that small clubs continue to benefit from the sale of players. But the EC is still dissatisfied at some of the proposals submitted by FIFA and UEFA in October, particularly the proposed ban on all transfers for players under 18.

Reding said: "This also curbs freedom of movement. But the idea is right . . . I believe we can have the same result if we had agreed rules on how young footballers should be treated."