Welsh rugby's Premier clubs have decided to reject the financial package on offer to fund five regional teams for next season.
BBC Sport understands the offer from Welsh Rugby Union group chief executive David Moffett falls £500,000 short of the minimum amount the clubs want.
"The Premier clubs have unaminously rejected David Moffett's latest proposal that is a reduction from his earlier financial promises made at last week's meeting," Derrick King, chairman of the Welsh Premier Division clubs, said.
The only alternative to the proposed new structure is stay at nine clubs for next season with even less money.
The clubs insisted on Friday that remaining at nine is not an option, but said the gap between the amount on the table and what they want cannot be bridged.
This is not brinkmanship, we do not have the extra money
"We hope to resolve all the problems but it will cost a lot of money to run these new teams and we know what the minimum is we can accept," King added.
Discussions are on-going between the clubs and Moffett, who is in Paris for Wales' RBS Six Nations game against France.
Moffett told BBC Wales Sport: "I find it terribly disappointing and bizarre when we have always said we only have enough money for four teams.
"It looks like nine clubs next season at a reduced funding of £4.62m.
"This is not brinkmanship, we do not have the extra money."
Llanelli chief executive Stuart Gallacher said that asking the club benefactors to find another £500,000 for a new, untried format "beggars belief."
Moffett needs a positive response from the clubs to take the regional proposal to European rugby bosses next week before the 2 April deadline to declare Welsh participation.