(Bloomberg) —The European Union demanded Britain go further to guarantee the rights of millions of EU citizens after Brexit, in a blow to Prime Minister Theresa May’s hopes for a swift deal.

Michel Barnier, the bloc’s chief negotiator, knocked back May’s offer to protect work and residency rights for its citizens living in Britain less than two hours after she set it out in a detailed 20-page report on Monday.

“More ambition, clarity and guarantees needed than in today’s U.K. position,” Barnier said on Twitter. The bloc’s goal is for the “same level of protection as in EU law,” he said.

The response sets up a clash which threatens to hold up crucial talks on a new trade deal between Britain and EU. Both sides want an early settlement on citizens’ rights and have agreed they won’t start talking about a free trade accord until this issue, among others, is agreed.

An estimated 3.2 million EU ex-patriots living in the U.K. will be treated as if they’re British for the purposes of receiving state education, health care, benefits and pensions, she said. The proposal would force EU nationals to hold an identity document after Brexit. The premier said she wants a reciprocal agreement to guarantee the rights of 1 million British citizens living in other EU countries.

‘Some Anxiety’

“I know there has been some anxiety about what would happen to EU citizens at the point we leave the European Union,” May told lawmakers. “I want to completely reassure people that under these plans no EU citizen currently in the U.K. lawfully will be asked to leave at the point the U.K. leaves the EU — we want you to stay.”

May needs to make quick progress on agreeing citizens’ rights in negotiations with the EU so she can move ahead to discuss the new trade agreement she wants with the bloc after Brexit. Barnier’s response suggests she’ll need to make further concessions after European leaders last week criticized her opening bid for falling short and for threatening to leave their citizens worse off than now.

Responding to Barnier’s tweet, May’s spokesman James Slack told reporters that while the negotiation has only just started, he believes the government has made a “fair offer”.

The plan would allow EU nationals to send welfare payments to children living elsewhere and they won’t have to prove they have comprehensive sickness insurance when seeking residency. Britain also offered to make unilateral guarantees on the indexation of EU nationals’ pensions.

‘Settled Status’

Setting out details of her proposal, May said Europeans who have been living in the U.K. for five years will get a new “settled status” after Brexit, giving them the same rights as British citizens to bring family members into the country.

This will prove to be a sticking point in talks. Nationals of EU countries currently have fewer restrictions on bringing in non-EU family members than British citizens, who must prove their income reaches a certain threshold, among other requirements. Giving ground would open up May to criticism at home from euroskeptics.

May’s pitch will disappoint those businesses that want greater certainty regarding their current employees and the ability to hire foreign labor in the future. Bureaucracy is likely to increase.

“Employers who are reliant on EU staff and are focusing on their future staffing needs are going to need to work harder than ever to support their staff,” said Stephen Ratcliffe, a partner at law firm Baker McKenzie.

EU Court

In a 20-page document published for the first time on Monday, the government signaled it will keep rebuffing EU demands for the European Court of Justice to have a role in arbitrating disputes. It also said the cut-off date for rights could be set in March 2017, while the EU has said it wants it to be when Britain leaves the bloc in 2019.

May was clear that only British courts will be able to rule on enforcing the rights of EU nationals living in the U.K. “Our courts are world renowned, they are respected around the world,” she said.

Under the U.K. plan, the government will streamline the process for applying for residency, although those who recently filled in an 85-page application would still need to go through the new system.

‘Grace Period’

May’s government provided a template for a possible transition after Brexit by suggesting a “grace period” of as long as two years in which applicants can get their papers in order.

“EU citizens make an invaluable contribution to our United Kingdom — to our economy, our public services and our everyday lives,” May told lawmakers. “They are an integral part of the economic, cultural and social fabric of our country and I have always been clear that I want to protect their rights.”

May first outlined her offer at a summit of EU leaders in Brussels last week, and received a lukewarm response with EU President Donald Tusk saying it was “below expectations.”

“We will study it, we will discuss it with our member states, with the European Parliament, and we will start negotiating on July 17,” European Commission spokesman Margaritis Schinas told reporters in Brussels before May’s announcement on Monday.

Italian Finance Minister Pier Carlo Padoan hinted that there may be trouble ahead.

“I hope we can make progress in agreeing on a new regime which satisfies both sides,” he said in an interview with Bloomberg TV. “But I don’t see it as easy as sometimes depicted.”

–With assistance from Ian Wishart.To contact the reporters on this story: Tim Ross in London at tross54@bloomberg.net ;Simon Kennedy in London at skennedy4@bloomberg.net To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net ;Simon Kennedy at skennedy4@bloomberg.net Thomas Penny, Robert Jameson