European Commission President Ursula von der Leyen and British Prime Minister Boris Johnson have asked their chief Brexit negotiators to resume talks, but have cautioned that no deal was possible unless key issues were resolved.
"Significant differences remain on three critical issues: level playing field, governance and fisheries," they said in a joint statement.
"Both sides underlined that no agreement is feasible if these issues are not resolved."
"Whilst recognising the seriousness of these differences, we agreed that a further effort should be undertaken by our negotiating teams to assess whether they can be resolved," they said.
The two leaders welcomed the fact that "progress had been achieved in many areas", and said they will be instructing their chief negotiators Michel Barnier and David Frost to reconvene tomorrow in Brussels.
Both Ms Von der Leyen and Mr Johnson have agreed to speak again on Monday evening.
I welcome the fact that negotiators will resume their discussions on an EU and UK trade deal in Brussels tomorrow. An agreement is in everyone's best interests. Every effort should be made to reach a deal.— Micheál Martin (@MichealMartinTD) December 5, 2020
Taoiseach Micheál Martin has welcomed the move, saying that an agreement is in everyone's interest and that every effort should be made to reach one.
"We will see if there is a way forward. Work continues tomorrow," Mr Barnier said following the announcement.
We will see if there is a way forward. Work continues tomorrow. https://t.co/dUGmZB4Dgx— Michel Barnier (@MichelBarnier) December 5, 2020
Its understood that EU and UK Brexit negotiators remain far apart on the fisheries issue, on which both sides are "totally stuck", according to an EU source.
The UK is understood to be proposing a three-year period during which the status quo would prevail in terms of access for EU boats to UK waters.
On fish quotas, the UK is understood to be seeking €300m worth of demersal stocks from the total value of fish currently caught by EU boats in British waters.
Demersal fishing involves catching fish or seafood on or near the seabed.
Michel Barnier, the EU's chief negotiator, is said to be maintaining the EU's proposal of between 15-18% of the value of the fish caught in UK waters by EU boats.
Sinn Féin leader Mary Lou McDonald has said the window to have any agreement ratified before the end of the year was closing fast.
"A deal is better than a no-deal Brexit for Ireland, but we must remember that any deal - let alone a hard-Brexit Free Trade Agreement - will be hazardous for Ireland," she said.
She added: "Regardless of the outcome of these negotiations, it is essential that the Irish Protocol is fully honoured and implemented. It is our insurance policy against a hard border, and it protects the Good Friday Agreement and the all-Ireland economy."
With time for an agreement rapidly running out, the two sides' chief negotiators announced yesterday they were putting the talks on "pause" to allow political leaders to take stock.
In a joint statement following the latest round of negotiations in London, the UK's David Frost and Mr Barnier said the conditions for an agreement had still not been met.
After months and months of circling round the same issues, they said "significant divergences" remained over fisheries, the "level playing field" rules on fair competition and the enforcement mechanism for any deal.
While a series of deadlines have come and gone, this weekend is being seen as crucial if there is to be an agreement before the current Brexit transition period comes to an end at the end of the month.
However the UK side has accused Brussels of trying to introduce "new elements" into the talks at the 11th hour putting the chances of a deal in jeopardy.
They fear Mr Barnier has been coming under pressure from French President Emmanuel Macron, as the leader of a group of nations concerned that he has given too much ground to the UK.
Yesterday, France's Europe minister Charles Beaune publicly warned his country could veto any agreement if they were not happy with the terms.
Taoiseach Micheál Martin has called for the negotiators to be given the "space" they need to conclude their discussions.
EU leaders are due to meet on Thursday for a two-day summit in Brussels - their last scheduled gathering of the year - when they could sign-off on any agreement.
Time then has to be found for both Houses of Parliament in the UK and the European parliament to ratify it before the transition period expires.
If there is no agreement the UK will leave the European single market and customs union on 31 December and begin trading with the bloc on World Trade Organisation terms, with the imposition of tariffs and quotas.
In a further complicating factor, the UK Government is bringing back to the Commons legislation enabling it to override elements of Mr Johnson's "divorce" settlement with Brussels in breach of international law.
On Monday, MPs will vote on whether to overturn amendments by the House of Lords which removed the provisions in the UK Internal Market Bill relating to the Irish border.
MPs will then go on later in the week to debate the Taxation (Post-Transition Period) Bill which contains further similar provisions.
The legislation has infuriated the EU and - if it is passed - could further sour the mood in the negotiations making a deal harder to reach.
In their statement, Mr Frost and Mr Barnier said: "After one week of intense negotiation in London, the two chief negotiators agreed today that the conditions for an agreement are not met, due to significant divergences on level playing field, governance and fisheries.
"On this basis, they agreed to pause the talks in order to brief their principals on the state of play of the negotiations."