British and European leaders insisted Monday they could still reach a Brexit deal despite the latest failed round of divorce talks, but the EU warned a no-deal scenario was "more likely than ever before".
British Prime Minister Theresa May admitted there was still "disagreement" over , although she said a deal was still "achievable".
"We'll just have to keep negotiating", said German Chancellor Angela Merkel, while French President Emmanuel Macron said he believed "we can make progress".
British Prime Minister Theresa May and European Commission President Jean-Claude Juncker. Source: AAP
But EU President Donald Tusk said in a letter to members of the European Council that while he encouraged all involved to "remain hopeful and determined... at the same time, responsible as we are, we must prepare the EU for a no-deal scenario, which is more likely than ever before".
The leaders were speaking two days before heading to Brussels for a summit that has been billed as the "moment of truth" ahead of Britain's exit from the bloc in March.
May will update the other 27 European Union leaders before their dinner in Brussels on Wednesday, with the summit kicking off on Thursday, her Downing Street office confirmed.
The EU's Brexit pointman Michel Barnier met his British counterpart Dominic Raab in Brussels on Sunday, but they failed to agree on a draft Brexit divorce arrangement as had been hoped.
Irish Prime Minister Leo Varadkar, whose country would suffer the biggest economic impact if Britain leaves the EU without a deal, said an agreement was now more likely in November or December.
May's Northern Irish unionist allies meanwhile warned the impasse meant it was "probably inevitable" Britain would leave the EU with no deal.
EU Brexit negotiator Michel Barnier. Source: AAP
Ireland's nationalist Sinn Fein leader Mary Lou McDonald cautioned her unionist rivals that if there were a hard Brexit, "then there will be an immediate demand for a referendum on Irish unity."
Time for 'cool heads'
Meanwhile, May made a statement to the House of Commons to address what she called "inaccurate speculation" about the Brexit talks.
The Conservative leader, who is facing a political high-wire act in trying to reach a deal that is acceptable to both the EU and her MPs at home, said it was time for "cool, calm heads to prevail".
"I continue to believe that a negotiated deal is the best outcome for the UK and for the EU. I continue to believe that such a deal is achievable," she said.
But the threat she faces was revealed by Sammy Wilson, the Brexit spokesman for the Democratic Unionist Party (DUP) which props up her government.
He suggested there was no Brexit deal that would command the support of all British MPs, saying a no-deal scenario was "probably inevitable".
European leaders insisted there was still time to resolve the outstanding issues before a possible emergency summit in November.
"We were actually pretty hopeful that we would manage to seal an exit agreement. At the moment it looks more difficult," Merkel said, adding "we'll just have to keep negotiating".
In Paris, Macron said: "I believe in our collective intelligence, so I think we can make progress", but added that "we are ready for all scenarios".
Austrian Chancellor Sebastian Kurz said Britain and the EU have "no alternative" to agreeing a divorce deal.
"In the end we will find a way to deal with the UK," he told reporters after meeting Dutch Prime Minister Mark Rutte in The Hague.
Irish fundamentals
Sunday's talks between Barnier and Raab ended without a breakthrough on the crucial issue of future trade to and from the British province of Northern Ireland.
London and Brussels say they want no physical checks on the land border between Northern Ireland and the Republic of Ireland, but the problem persists of how to square that aim with Britain's decision to leave the EU's single market and the customs union.
Britain has proposed sticking with EU customs rules after Brexit as a fallback option to keep the border open until a wider trade deal is agreed that avoids the need for frontier checks.
Britain has proposed sticking with EU customs rules after Brexit as a fallback option. Source: AAP
The EU's suggestion would see Northern Ireland remain aligned with Brussels' rules, thus varying from the rest of the United Kingdom - an idea which is unacceptable to the DUP.
May said this weekend's talks broke down because, while the EU accepted London's plan had merit, it was still insisting on its own proposal.
She added that the two sides also remain at odds over how long the customs "backstop" would last, saying it could not continue "indefinitely."
