Europe's satellite-navigation system, Galileo, will have to be built with public funds if it is to be built at all, says the European Commission (EC).
So far, only the test satellite Giove-A is flying in orbit
It has put forward proposals for the stumbling space project to be completed with taxpayers' money - not the private finance as was originally envisaged.
The four billion euro (£2.7bn) system should be up and working by 2012.
Its 30 satellites will beam radio signals to receivers on the ground, helping users pinpoint their locations.
The recommendation now to construct the whole system - its spacecraft and ground control segments - using public funds stems from the failure to agree terms with a consortium of major aerospace and telecom concerns.
The consortium - comprising EADS, Thales, Inmarsat, Alcatel-Lucent, Finmeccanica, AENA, Hispasat, and TeleOp - could not meet a deadline set by the EC to adopt a common negotiating position.
Under new proposals for the future development of Galileo, these companies will now be offered the opportunity to run the system - but only after the public sector has built it.
UK-based Inmarsat said it was still very keen to be part of Galileo.
"Inmarsat was chosen as an operator of the system and we will be happy to continue to be the operator. We remain 100% convinced of the need for Galileo," a company spokesman told BBC News.
European Commission Vice President Jacques Barrot told a press conference in Brussels on Wednesday that only a publicly funded model could ensure Galileo became operational by 2012.
"There have been delays and there can be no more delays," he said.
The solution will now go to the EU's transport ministers in June for their approval.
GALILEO UNDER CONSTRUCTION
A European Commission and European Space Agency project
30 satellites to be launched in batches by end of 2011-12
Will work alongside US GPS and Russian Glonass systems
Promises real-time positioning down to less than a metre
Guaranteed under all but most extreme circumstances
Suitable for safety-critical roles where lives depend on service
The new European constellation is expected to drive a huge industry in which receivers find their way into many more markets - from consumer devices such as mobile phones to safety-critical applications such as guided trains and buses.
Analysts estimate the market value of these sat-nav services could be worth 450bn euros a year by 2025.
But the quest to make Galileo a public-private partnership (PPP) has stymied efforts to take the project forward.
As originally envisaged, taxpayers in the EU would inject more than one billion euros (£0.7bn) into the early development of the project.
The deployment phase - the launch of the satellites and the construction of ground stations - was expected to cost at least two billion more, with two-thirds of the investment being borne by the private sector.
The latter was also expected to pick up all the running costs in the long term.
The first demonstrator spacecraft, Giove-A, is already in orbit. A second, Giove-B, which has had some technical problems, should be in orbit by the year's end.
The contract for the first four satellites proper in the final constellation was awarded at the end of 2004. Under the new arrangement, the public sector would now order the remaining 26.
During the course of the next six years, this will require Europe's ministers to release an extra one billion euros over and above the funds they were probably going to have to make available under the current PPP.
The Commission's view, however, is that the certainty and simplicity this brings to the Galileo project makes the proposed solution the best way forward in the long run.
"The most beneficial, the most realistic and, in the long term, the most economic option will be for all the initial infrastructure to be put in place while being piloted and financed by the public sector," the Commission said in a statement.
"In contrast, the operation of the system will be entrusted to a private concession holder," it added.
Satellite navigation systems determine a position by measuring the distances to a number of known locations - the Galileo satellites
The distance to one satellite defines a sphere of possible solutions; the distances to four satellites defines a single, common area
The accuracy of the distance measurements determines how small the common area is and thus the accuracy of the final location
In practice, a receiver captures atomic-clock time signals sent from the satellites and converts them into the respective distances
The whole system is monitored from the ground to ensure satellite clocks do not drift and give out misleading timings