Despite his outright rejection of government plans Mr Kiley said he and Mr Prescott had had positive talks and hinted that he thought the deputy prime minister might be prepared to compromise on the issue.
"On the basis of the information made available to me, I have concluded that the basic structure of London Underground's PPP as presently conceived is fatally flawed and will not promote an improvement in the service offered to Londoners," Mr Kiley concluded.
Mr Livingstone's rejection of PPP and his own favoured version of a bond issue has put him on a long-standing collision course with the government.
On Tuesday, Transport Secretary John Prescott had two hours of talks with Mr Kiley, who has the title Commissioner of Transport for London.
Positive talks
Despite his outright rejection of government plans Mr Kiley said he and Mr Prescott had had positive talks and hinted that he thought the deputy prime minister might be prepared to compromise on the issue.
On Wednesday, at a news conference at the Greater London Authority's temporary headquarters in Romney House, Mr Kiley unveiled his vision of how the Tube should be financed.
His idea would include a bond issue, but would also rely on substantial partnership with the private sector.
Mr Kiley hinted that management would substantially change under his stewardship - but if his plan was accepted, the Tube would remain in the public sector.
"I actually think you can call [this] 'son of PPP'. Bob Kiley's plan brings together the best of the private sector and maintains the unified chain of command which is essential for safety," Ken Livingstone said.
Face saving?
And in what was taken to be a face-saving offer to Mr Prescott, in the event that he did compromise over PPP Mr Livingstone said there was no question of Mr Prescott caving in.
The government's plans involve financing improvements by a partial sell-off of the Tube.
The Treasury has drawn up plans to divide the network into three companies with private companies bidding for the franchises to run them.
Mr Kiley presented his alternative strategy to a meeting of business people, MPs, council officials and trade unionists on Wednesday - a meeting that Mr Livingstone hailed as a success.
Bond issue
Mr Livingstone said: "If Mr Kiley's plan is accepted it will bring to an end the crisis over the funding of London Underground and allow the modernisation of the system to begin."
But Mr Prescott remains committed to introducing a PPP, which the government believes is the best and most realistic means of guaranteeing investment in the Tube.
He plans to institute the system - in the face of opposition from the Greater London Assembly, which last week voted against the proposal - before handing over control of the Underground to the mayor.
The Health and Safety Executive is conducting a thorough audit of London Underground's safety systems to establish whether they could be maintained under a PPP system.
That could prove a useful get-out for the government in the event that public opinion becomes increasingly set against the division of the Underground - especially in light of recent problems on the privatised railway system.
Around three million people use the Tube every day. Without HSE approval of safety standards, the government's preferred method for funding improvements would not be allowed to proceed.