But on Tuesday the British Embassy there said China had authorised the Virgin tycoon's balloon, which can only be steered to a limited degree, to fly over its territory as long as it heads south of the 26th parallel.

BBC Correspondent Geeta Guru-Murthy: The Balloon crossed into Chinese airspace 250 miles off-course

An Embassy official said the balloon was already heading south to comply.

But the Chinese Foreign Ministry, the government information office and the official sports associations refused to confirm the permission.

And the ICO Global headquarters in Middlesex said they had not yet received any official response from the Chinese Government.

Piloted by British tycoon Richard Branson, American Steve Fossett and Sweden's Per Linstrand, the balloon crossed from Nepal into Chinese-ruled Tibet just before 2200 GMT on Monday.

China had initially given permission for the balloon to travel in its airspace south of 26 degrees north latitude.

The BBC's Andrew Bomford explains the latest developments

But due to diversions around Mediterranean storms and Iraq, the balloon crossed the Himalayas further north than planned and entered China 250 miles north of the agreed airspace corridor.

Project director Mike Kendrick said Chinese air-traffic controllers were informed the moment the balloon passed over the border, with an apology added to the communication. The balloon team continued to contact them every 15 minutes to keep the Chinese informed about their position.

Mr Branson: Hoping for successful negotiations

"We are in someone else's airspace without permission - it is not a nice place to be," he said.

But Mr Kendrick added that the long journey across China was an inescapable part of any round-the-world bid.

"If we don't go through China, we don't do a global flight," he said. "We have to go through China - that is the bottom line. All I'm hoping is that we can stay in the air for long enough."

In February, China withheld permission for a European balloon team to fly through its airspace, ending their round-the-world bid.

As it became apparent that the balloon would inevitably enter Chinese territory, the UK Government started diplomatic negotiations.

Prime Minister Tony Blair sent a message to his counterpart Zhu Rongji asking for China's help, the British Embassy official said.

But a spokeswoman for China's defence ministry, which is in charge of the country's airspace, said she had never heard of Mr Branson or the balloon.

Personal record

British sources said however that the Chinese behind the scenes placed great importance on the team's safety.

It had been feared that if the flight was forced down over the area, the balloon's crew could be stranded in freezing conditions for up to seven days before being rescued.

On Sunday Mr Branson and Mr Lindstrand broke their personal duration record of 48 hours set during their record-breaking 1991 crossing of the Pacific in a hot air balloon.

The current track, if it is allowed to progress, will take the balloon straight over England, meaning Mr Branson could fulfil his dream of landing in his Oxfordshire garden.

If all goes to plan from there, the balloon will fly over San Francisco on Christmas Day before completing the round-the-world journey on New Year's Eve or New Year's Day.

The crew have already had several hair-raising moments that threatened to scupper their bid for the last great prize in aviation.

'Threading a needle'

Having managed to overcome fears that Libya would not allow them to fly over its territory, and then avoided Iraqi airspace, the crew faced a struggle to avoid Russia and Iran.

An exhausted Mr Branson said from the tiny capsule on Sunday: "Somebody was looking over us last night.

"We not only missed the storm, but also missed Iraq by 60 miles and Iran by seven miles and Russia by 10 miles."

Project director Mike Kendrick said: "To go through a gap of this width, after 3,000 miles of flying, is like threading a needle.

"To achieve this accuracy could only be dreamt of by the world's ballooning champions."

The balloon is expected to follow a south-westerly route over Pakistan, India, Nepal and Burma.

Its progress can be charted on the official Website at: www.icogobal.com