David Cameron has denied that his cuts to the armed forces budgets have reduced Britain's influence in the world.
The Prime Minister's comments came shortly after former US defence secretary Robert Gates warned that the Government's military cuts will prevent Britain being a "full partner" with America.
Mr Cameron was challenged over the impact of the cuts during an appearance before Parliament's cross-party Joint Committee on the National Security Strategy.
Chair Margaret Beckett said the committee was worried that the Government had set an "unrealistic" target to implement the cuts while ensuring there was no reduction in the UK's global influence. And she asked whether ambitions set out in a recent document to "expand" British influence would simply mean "spreading ever thinner across the world".
Mr Cameron acknowledged that "of course the defence budget has come down in real terms - not by a huge amount but by a small amount".
But he told the committee: "Even in terms of defence, because we have made choices - fewer battle tanks in Europe, more investment in drones and cyber and flexibility - I would argue that there has been no long-term reduction in Britain's defence capabilities and our ability to stand up for ourselves in important ways around the world.
"I also reject the idea that you can only measure how engaged you are and how successful you are in projecting influence by how much money you spend. No business goes about its life like that.
"We've got to make sure we get as much in the teeth and as little in the tail of our defence, and I would argue that the Ministry of Defence under Philip Hammond's leadership has been pretty successful in that.
"I don't accept the idea that because we are spending a little bit less on defence, we can't be as significant a defence player."
Mr Cameron denied that the Government's Strategic Defence and Security Review in 2010 was driven wholly by budgetary constraints as Chancellor George Osborne sought to find cuts across Whitehall to help reduce the deficit.
"I would reject that completely," he told Dame Margaret. "The Defence Review was about how we should configure our defence forces given Britain's place in the world, given our foreign policy and security policy objectives...
"This was not driven by spending. Of course it was informed by what we believed was affordable. But it was a proper Strategic Defence Review that took proper strategic decisions."
Mr Cameron said the armed forces were only one of the tools used by Government to exert UK influence internationally.
"If you look across our projection of power and influence, the Foreign Office, international development, defence, trade, I think we can definitely say that Britain is actually doing more," he told the committee.
"We have been opening embassies and expanding our presence in India and China. I think we are one of the only European countries with an embassy in every Asean (Association of South-East Asian Nations) nation.
"There is no doubt in my mind that part of our strategy is we want to link up with the fastest-growing parts of the world. We want to be an open and engaged power. We are using all of what we have to do that."
Mr Cameron was challenged over the warning made by the Chief of the Defence Staff, General Sir Nicholas Houghton, earlier this month, that the current course of defence policy could lead to a "hollow" armed forces with "exquisite equipment, but insufficient resources to man that equipment". Already, the Royal Navy was "perilously close" to its "critical mass" in terms of manpower, the CDS said.
"To be fair to the CDS, I think what he said was that if spending reductions went further there would be a danger of what he called `hollowing out'. I don't think he said we were in danger of that happening with what we have," said the Prime Minister.
"The point I would make is that in the SDSR we made decisions with the Chiefs of the Defence Staff around the table that were about the future capabilities of the UK and a very strong argument was made - which I completely agree with - that we need to have a Navy that is full spectrum...
"Obviously we've got to do everything we can on value for money, on efficiency. But I think if we do that I don't see any reason why we won't be able to properly run and crew these excellent assets."
Mr Cameron acknowledged that the SDSR decisions had led to a "gap" of several years during which Britain has no aircraft carrier to deploy.
But, in an apparent riposte to General Houghton, he told the committee: "The exciting thing is, as we come into the next SDSR, that gap is going to be coming to an end and we are going to have a fantastic new aircraft carrier sailing out on to the high seas pretty soon, with planes on it and people in it."
Mr Gates, who served as defence secretary under presidents Barack Obama and George W Bush, warned earlier this month that as a result of cuts, the Royal Navy would not have the "full spectrum capabilities" the US has previously relied upon.
But Mr Cameron told the committee: "Where I take issue slightly with former secretary Gates is I think, actually, if you look at the equipment programme for our Navy, it is absolutely a full-spectrum equipment programme.
"You've got the two carriers under construction, you've got the Type 45 destroyers coming into action - one of the most modern warships anywhere in the world - you've got the future frigate programme which is there, you've got the hunter-killer submarine increasingly rolling off the stocks in Barrow, you've got the Trident submarines and the pledge to renew them, and obviously the immense ability of the Royal Marines.
"In terms of the Navy, I think it has got a very bright future and it is a full-spectrum capability from the nuclear deterrent at one end to smaller vessels right at the other end.
"So I don't accept that we are shrinking the Navy or it's not a full-spectrum capability. It absolutely is."