Irish victims of the drug thalidomide could benefit from a new change to German law, which could see them receive increases of up to 500% in compensation payments from a fund backed by the German government.
The Department of Health said it recently learned of the development and it has informed groups representing the 31 Irish survivors of the German-made drug.
Thalidomide was given to women as a treatment for morning sickness more than 50 years ago.
It led to thousands of babies being born with severe disabilities.
A senior official in the State Claims Agency is engaged in discussions with the German government to finalise legal issues, the Department of Health said.
It is understood this relates to concerns that any future award or compensation paid to Irish survivors by the Government may be deducted from the new regime of payments made by the German government.
The new payments will come into effect on 1 August and will be back-dated to 1 January this year.
However, the Irish Thalidomide Association has accused Taoiseach Enda Kenny of providing an inaccurate account of negotiations between the Government and the group when Mr Kenny was speaking in the Dáil last week.
It is understood around 20 members of the Irish Thalidomide Association served notice of their intention to sue the Government in recent weeks amid frustration over the pace of talks.
Mr Kenny told the Dáil last week that good progress had been made in those negotiations. He was responding to a question from Fianna Fáil leader Micheál Martin.
Speaking to RTÉ's This Week, spokesman for the Irish Thalidomide Association Dr Austin O'Carroll said the group's members were angered by the Taoiseach's statement and he called on Mr Kenny to rectify it in the Dáil.
Dr O'Carroll said it did not reflect the status of discussions between the sides, which he said had not advanced in any meaningful way since the sides failed to reach agreement on the terms of a package of supports last year.
Around two-thirds of the 31 Irish thalidomide sufferers are suing the State. The Department of Health has confirmed that the legal papers were served in recent weeks.
The ITA and the Irish Thalidomide Survivors Society both said that the Government could not claim any credit for the increased monthly payments arising from the change to German law.
They said this change arose from intense lobbying by German survivors of the drug, Around 2,300 of the drug's 2,800 worldwide victims live in Germany.
The ITA said that there was "no meaningful progress" in its talks with the Government, which were aimed at finding a middle-ground on the group's three core demands of a full State apology, a statutory healthcare package and an enhanced compensation scheme.
Grunenthal, the German company that manufactured the drug, apologised last year for the adverse effects it caused to the babies.