THE Government has rejected a compromise funding package for Merseytram which it was hoped would finally allow the project to go ahead.
A meeting took place on Monday between transport minister and Halton MP Derek Twigg and leaders of the tram scheme, who were told a decision would be made within 48 hours.
But the Department of Transport has sent another letter to Merseyside repeating its demands for a guarantee from Liverpool and Knowsley councils that they will meet future cost rises.
The two authorities have agreed a contingency budget of £24m between them, but have refused to write any "blank cheque". Instead, Merseytravel had offered to act as guarantor for any unforeseen costs.
Politicians, and officials from Merseytravel and Knowsley and Liverpool councils, returned to Merseyside on Monday confident that the compromise would be accepted.
But the Government is still adamant that Liverpool and Knowsley should agree with its demands.
A meeting will take place in Merseyside tomorrow to discuss the next step. A spokeswoman for the Department of Transport said last night: "A letter has gone out and we need to hear back from Merseytravel.
"The Government needs to know there will be no requests for any more money. We need the councils to give an unconditional assurance that they will cover any excess costs.
"We also need the districts involved to be fully aware of the risks. We have not had these assurances."
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