The plan could see Britain hold back part of its £40bn Brexit bill if the EU begins to backslide on its promise of a deal.
Members of Theresa May’s team have reportedly met in private to discuss how such a plan could be put into practice if needed.
The revelation comes just days after the EU Parliament’s Brexit coordinator warned the bloc would not sign off on a future trade agreement before the UK formally leaves on March 29, 2019.
Guy Verhofstadt said a deal could be “more or less” agreed this year, but insisted it would not be legally binding until after Brexit day.
His comments go directly against the Prime Minister’s stated aims for the split.
British ministers are reportedly concerned detailed trade talks will have to take place during the transition, after the UK has left the EU and potentially lost its leverage.
But Bloomberg has reported three senior sources as saying officials have privately discussed the possibility of the plan as a backup option in case negotiations break down.
Speaking on the condition of anonymity, they said Britain could halt its Brexit payments in the event of the EU refusing to give the UK the deal it wants.
The officials said putting the plan into practice was not the UK’s preferred outcome, but it was being developed in case the EU tries to renege on its commitment.
One source said exactly how Britain will pay the multi-billion-pound Brexit bill has yet to be agreed, which meant it could be possible to hold the money back.
Another said because the payments are due to be made over a number of years, they could be stopped if need be.
Brexit Secretary David Davis is due to speak in Vienna today (Tuesday) as negotiations on the proposed two-year transition continue.
Mr Davis is expected to propose a “mutual recognition” regulation system after the split, which would allow cars built and approved for sale on the continent to be sold in the UK and vice versa.
He will say: “A crucial part of any such agreement is the ability for both sides to trust each other’s regulations and the institutions that enforce them.”