He echoed the comments made last Friday by the outgoing US Defence Secretary, Robert Gates, who criticised the Europeans for not doing enough.

Mr Gates said Nato faced the risk of collective military irrelevance.

He said he was exasperated that only four European countries - France, the UK, Greece and Albania - are spending 2% of GDP on defence.

"If current trends in the decline of European defence capabilities are not halted and reversed, future US political leaders - those for whom the cold war was not the formative experience that it was for me - may not consider the return on America's investment in Nato worth the cost."

Libya had revealed serious shortcomings, he added. Only 11 weeks into the operation against a poorly-armed regime, the allies began to run short of munitions. Supplies had to be brought in from the US.

In an interview with the BBC's Newsnight programme, Mr Rasmussen said Nato was "more wanted and needed than ever", but that he shared Mr Gates' concerns about declining defence budgets across Europe.

"If we are to compete we also need proper investments," he said.

It was not just Nato's future that was at stake, Mr Rasmussen argued.

"I think that European countries need to step up to the plate."

"If Europe is to play a significant role on the world stage in the future and take part in international security management missions then Europe also needs critical military capabilities and that takes defence investments at a certain level."

Mr Rasmussen's interview was recorded just before he gave a speech in London on Nato's missile-defence plans.

These, he says, could be a prime example of "smart defence" - pooling resources between countries to get better value for limited funds.

Mr Rasmussen sees ballistic missile defence as a project that could help cement trans-Atlantic ties within Nato for the future.

But there is a danger in this, because Nato's initial missile-defence plans essentially piggy-back on the existing US effort, says BBC defence correspondent Jonathan Marcus.

If the European allies do not contribute significantly, there is a possibility that missile defence could become a prime example of the US spending its tax dollars in order to help keep reluctant Europeans safe, he adds.