A consortium led by Franco-German defence giant EADS is working to keep a £13bn contract to refuel UK warplanes, after complaints arose about its cost.
The AirTanker consortium which proposes using Airbus aircraft for the project won UK approval in January.
But a leaked defence ministry letter published in the Financial Times newspaper said it may be scrapped.
Head of defence procurement Sir Peter Spencer reportedly wants £130m knocked off the cost of the deal.
'Part of talks'
He is also concerned about the way the project is to be financed.
"If there is failure to reach satisfactory agreement on these issues... I will have no hesitation in recommending the cancellation of the programme," Sir Peter said in the letter to EADS.
The consortium has said it is now trying to meet the government's demands which UK officials say must be met by Thursday or else the deal will be off.
EADS has tried to downplay the stand-off, saying such letters are all part of negotiations for such a large contract.
"I'm not sure it is uniquely strongly worded," said Robin Southwell, chief executive of AirTanker.
Funds short MoD
Britain has been considering how it is to replace its ageing fleet of re-fuelling planes for several years,
According to the deal, AirTanker would own and maintain the tankers for the Royal Air Force for 27 years.
The cash-strapped MoD is unable to buy the re-fuellers.
"It is not affordable as a purchase, they have said that all along," an industry official to Reuters news agency.
The profits Airbus and other companies in the group hope to get from the deal are relatively modest because so many parties are involved.
But the contract would establish these firms as major players in the global tanker market, which for years has been headed by Boeing and its affiliates.
Australia recently chose Airbus over Boeing for its tanker needs.
It remains to see if in future the US Forces choose the European company over the US's Boeing.
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