The Brexit talks appear to be on the point of collapse after Britain flatly rejected an EU ultimatum over the government’s plans to break international law by reneging on key parts of the withdrawal agreement. The clash on Thursday followed an EU demand that Boris Johnson drop his plans within three weeks or face financial or trade sanctions, after the bloc’s lawyers concluded that Britain had already breached the withdrawal agreement by tabling the controversial internal market bill. In a hard-hitting statement following a meeting with Michael Gove in London, the European commission vice-president Maroš Šefčovič had put the prime minister on notice that he needed to regain Brussels’ trust. He also raised the prospect of both a collapse in the ongoing trade and security talks and a legal battle with the bloc. “The EU does not accept the argument that the aim of the draft [internal market] bill is to protect the Good Friday (Belfast) agreement. In fact, it is of the view that it does the opposite,” the European commission said in a statement. In a sign of the plunging prospects of a deal, Germany’s ambassador to the UK, Andreas Michaelis, tweeted: “In more than 30 years as a diplomat I have not experienced such a fast, intentional and profound deterioration of a negotiation. If you believe in partnership between the UK and the EU like I do then don’t accept it.” Šefčovič had told Gove “in no uncertain terms” that the UK government must “withdraw these measures from the draft bill in the shortest time possible and in any case by the end of the month”, the statement added. “By putting forward this bill, the UK has seriously damaged trust between the EU and the UK. It is now up to the UK government to re-establish that trust.” But within two hours of the tense meeting, Gove said Downing St would not climb down. “I made it perfectly clear to the vice-president of the commission we would not be withdrawing this legislation,” said Gove. “I explained to Vice-president Šefčovič that we could not and would not do that … He understood that. Of course, he regretted it.” Gove said the UK was “absolutely serious about implementing the Northern Ireland protocol” and looked forward to setting out the justification to critics within his own party, which include the former leaders Michael Howard, Theresa May and John Major, when the bill had its second reading on Monday. The Cabinet Office minister said it was “a good meeting” in which the UK “stressed the importance of making progress” in the joint committee talks to ensure the legislation was not needed. His job, he said, was to achieve success. David Frost, Britain’s chief negotiator, said “a number of challenging areas remain and the divergences on some are still significant”. He said the UK remained committed to reaching an agreement by the middle of October. But with tensions high, the negotiations over the UK’s future relationship with the EU appear to be in deadlock. The bloc’s chief negotiator, Michel Barnier, separately issued a statement at the end of the eighth week of negotiations on a future trade and security deal in which he complained that London had not matched the EU’s willingness to find a compromise on the key sticking points: state aid and access to UK waters for European fishing fleets. “On its side, the UK has not engaged in a reciprocal way on fundamental EU principles and interests,” Barnier said. “Significant differences remain in areas of essential interest for the EU.” He did not, however, close the door on further negotiations despite noting that “to conclude a future partnership, mutual trust and confidence are and will be necessary”. According to an EU legal opinion, leaked to the Guardian, the commission believes Johnson’s government has already breached the terms of the treaty. “… by tabling the draft bill and pursuing the policy expressed therein, the UK government is in violation of the good faith obligation under the withdrawal agreement (article 5) because this bill jeopardises the attainment of the objectives of the agreement,” the commission lawyers write. The commission has advised the 27 EU capitals that there are grounds for the bloc to take “legal remedies” through the European court of justice before the end of the transition period, potentially leading to significant fines or trade sanctions. The legal opinion goes on to say that should the legislation be adopted it would be in “clear breach of substantive provisions of the protocol” in waiving any export procedures or formalities on the trade of goods from Northern Ireland to Great Britain and in restricting the application of EU state aid rules in the case of Northern Ireland. “Once the bill is adopted (as proposed), the commission may initiate infringement proceedings against the UK for breach of the good faith obligations,” the EU lawyers write. “Even before the bill is adopted, it could be defendable to bring infringement proceedings on the same grounds.” They add: “Given the length of the pre-litigation phase, it is unlikely that the case against the UK can be brought to the court before the end of the year. However, infringement procedures for facts occurred before the end of the transition period can be brought to the court during four years after the end of the transition.” The paper says the EU court has the potential to “impose a lump sum or penalty payment” on the UK, or Brussels could use the dispute settlement mechanism under the withdrawal agreement, “which may ultimately also result in the imposition of financial sanctions by the arbitration panel”. “In case of non-payment or persisting non-compliance, the complaining party is entitled to suspend its obligations arising from the withdrawal agreement (with the significant exception of the provisions relating to citizens) or from the future EU/UK agreement,” the lawyers write. The prospect of legal action may present itself before the year is out after it emerged that the government was hoping to rush through the internal market bill this month. The committee stage of the bill is scheduled for Tuesday and Wednesday after the second reading on Monday. The prime minister’s spokesman denied the bill was being rushed through, saying it was to ensure there were “no barriers to trade within the UK” at the end of the transition period on 31 December.