The sale of British Steel to Chinese firm Jingye could be scuppered by French intervention.
Jingye agreed in November to buy the collapsed business for £50m and save about 4,000 jobs.
However, the approval of the French government is required because British Steel has a plant in France that is considered a strategic national asset.
Now French Finance Minister Bruno Le Maire has threatened to veto the deal, as first reported by Sky News.
Mr Le Maire told Chancellor Sajid Javid of his intentions last week during a meeting in Brussels, government sources confirmed to the BBC.
The Anglo-French row centres on British Steel’s plant in Hayange, which supplies the French railway network, including state-owned train operator SNCF.
France has the power to block the sale of the Hayange plant, which has already been advertised for sale separately from the UK operation, apparently with the blessing of the French authorities.
When British Steel collapsed more than seven months ago, control of the holding company passed to the UK Insolvency Service, which is responsible for selling the assets.
Although the service is the beneficial owner of Hayange, day-to-day operational control of the factory remains in France.
There is another potential bidder for British Steel waiting in the wings.
Earlier this week, Turkish construction conglomerate Cengiz Holdings confirmed its “intention and ability to make an offer for the whole of British Steel, should the current talks with Jingye Group fall away”.
Cengiz chief executive Omer Mafa said the company was “ready and waiting to engage with the UK government and British Steel’s receivers to progress towards a full offer”.
Mr Mafa added that Cengiz enjoyed a “strong trading relationship with French industries such as energy, mining and aviation”.
Government sources confirm that the French finance minister has indicated to Chancellor Sajid Javid that he is opposed to Chinese ownership of what the French consider strategically important assets.
As a major supplier of steel to state-owned rail company SNCF, the French government considers the British Steel owned plant at Hayange in north-east France to fall into that category.
The French position is different to that of the UK government, despite the fact that British Steel is a major supplier to state-owned Network Rail.
Sources within the steel industry also confirm knowledge of the French objections.
There is also widespread unease within the UK steel industry of the scale of Chinese ambitions within the UK.
Jingye’s ambitions to significantly increase production at Scunthorpe, along with the acquisition a week ago of UK steel trading company Stemcor, have caused alarm among other steel producers at the increasing penetration of Chinese interests in an important primary industry.
French objections were widely anticipated and a process to carve out the French plant from the rest of British Steel if necessary has been under way for several months.
The government remains hopeful that the deal with Jingye can still be completed and talks to seal that deal are ongoing.
Carving out the profit-making French business is thought to make the overall deal less attractive to Jingye and for that reason, a deal with Turkish group Cengiz has been lined up as a potential fallback option if the deal with Jingye collapses.