The four Welsh chief constables have told new Home Secretary John Reid they are withdrawing from discussions over the idea of an all-Wales police force.
The chief constables say more money is needed for a single force
North Wales' Richard Brunstrom told a Welsh assembly committee that there was not enough money on the table.
The body representing local councils called the process a "farce".
The government wants the single force set up in a year. The Home Office, responsible for police funding, said any objections will be considered.
The chief constables had backed the merger in principle, but warned that a merger of the country's four police forces should not go ahead unless more money was found.
Mr Brunstrom told the assembly's social justice committee on Wednesday, he and colleagues would lodge a formal objection to the plan unless they were given assurances over long-term financing by 1 June.
Richard Brunstrom wants assurances over long-term finances
The chief constables fear the new budget for the combined operation will be much less than the total of the four existing forces of South and North Wales, Gwent and Dyfed-Powys.
Welsh local councils have criticised the handling of the reorganisation.
Also giving evidence to the committee, Steve Thomas of the Welsh Local Government Association (WLGA) described the consultation process as the "best farce since Charlie's Aunt".
Mr Thomas said goodwill towards the changes had evaporated as council leaders had faced an endless procession of confused Home Office civil servants whose knowledge of Wales was limited to the country having a rugby team and a few mountains.
Mr Thomas said the likelihood of the Home Office's timetable being met was as great as "a bacon sandwich flying past the assembly window".
Liberal Democrat AM Mick Bates, who is on the social justice committee, said he was worried by the extra costs of the merger.
He called for Mr Reid - who spoke to the Police Federation on Wednesday - to be "a little bit conciliatory".
"We should have at least a clear indication that all the costs will be paid off by the Home Office not the Welsh council taxpayer, he said.
"Our performance in Wales is excellent - if it ain't broke, don't fix it," Mr Bates said.
Plaid Cymru AM Leanne Wood AM welcomed the chief constables' move, and said the assembly should also consider a legal challenge.
Conservative shadow Welsh secretary Cheryl Gillan said the chief constables had "thrown the whole merger process into chaos" and that had shown the UK government had "got the whole process completely wrong".
A Home Office spokesperson has said it was "continuing to work closely with the Welsh police forces and authorities in respect of restructuring".