An £800m emergency package for Jaguar Land Rover is in doubt because of wrangling between the Treasury and Lord Mandelson's business department, according to the Guardian newspaper.
The in-fighting between the two departments is said to have the potential to cause delays of several months in getting the aid out, putting jobs at risk at Jaguar Land Rover.
The report also suggests that Jaguar Land Rover was warned in a meeting with Mandelson's department that the conditions demanded by the Treasury in return for supporting the £800m package may be so exacting that it would not agree to them.
A spokesman for Mandelson's department last night denied there was a rift with the Treasury.
"Officials from both the Treasury and BERR are in agreement that the primary responsibility for short-term financing or longer-term restructuring rests with the parent company," said the spokesman. "The government continues to have discussions with Jaguar Land Rover over its long-term business plans."
Mandelson has put together a £2.3 billion support package for the car industry. Of that, £1.3 billion was earmarked to guarantee loans made by the European Investment Bank.
The government announced this month that the EIB had agreed to lend £340m to Jaguar, but executives are frustrated that the government has yet to commit to underwrite the loan.
The £340m is part of the £800m refinancing package for Jaguar, made up of loans from banks led by government-controlled Royal Bank of Scotland and Lloyds Banking Group. Jaguar Land Rover owner Tata is thought to have agreed to provide £100m.
The Treasury has already agreed in principle to guarantee only about three-quarters of the EIB loan. Jaguar has agreed to underwrite the rest. But after three weeks of talks with civil servants, the Treasury has still not indicated what conditions it will set for underwriting the loan.
Jaguar is concerned that the Treasury may demand that the government is given an equity stake in the firm or that Tata pump another £300m into its UK subsidiary. Tata has already invested £800 million in the loss-making company after paying more than £1 billion to buy it from Ford.