The DUP and Conservatives remain "miles apart" on key elements of a proposed deal to shore up Theresa May's minority government, a DUP source has said.
Sticking points are thought to involve DUP demands for additional funding for Northern Ireland, with reports suggesting they are seeking £1 billion for health and similar figures for infrastructure.
The failure to bridge differences casts doubt on Mrs May's ability to get her Queen's Speech through parliament, with senior minister Damian Green acknowledging it is possible that no agreement will be reached in time for the crunch Commons vote on the package on 29 June.
While the DUP has historically voted with Conservatives in a majority of divisions, party sources indicate that the support of its ten MPs should not be "taken for granted".
They have a record of opposing Tory austerity and welfare measures in the last parliament, and it is understood that they could support opposition amendments in these areas during the six-day Queen's Speech debate.
DUP insiders are thought to be arguing that failure to reach agreement on a "confidence and supply" deal could cost the Conservatives more in the long run, as they would be forced to come cap in hand for the party's support on a vote-by-vote basis in the years to come.
One source told the Press Association: "They thought they had us in the bag and they wouldn't have to pay a price for it."
Senior Conservative sources said talks with the DUP were ongoing in the hope of reaching a confidence and supply arrangement, under which the Northern Irish party would not join the Government but would guarantee to ensure its survival by voting with it on financial measures and no-confidence motions.
The DUP is also looking for a more generous deal from the Treasury over the planned devolution of corporation tax powers, as well as cuts in air passenger duty.
A DUP source said officials within the Northern Ireland Office are urging caution on a deal because of concerns that the Government could compromise its status as an honest broker in peace process talks.
But Mr Green insisted that there was still "every possibility" of agreement.
"The talks have been taking place in a constructive way," the First Secretary of State told BBC Radio 4's Today programme.
"Clearly, two political parties, we have some differences, but we have a lot in common.
"We're both unionist parties at our heart.
"We're both, obviously, very concerned with combating terrorism, we both have similar views about delivering a good Brexit for this country, and, obviously, we're both very, very concerned with the Irish border issue.
"All talks of this kind take a long time, they are still continuing."
Liberal Democrat chief whip Alistair Carmichael, a former Scotland secretary, said any deal with the DUP which meant extra cash went to Northern Ireland would also require increased funding for Scotland and Wales.
"It will stretch far beyond the North Channel of the Irish Sea," he said.
"They need to spread their largesse.
"I'm a Scot, I never turn down more money.
"The question is where does it come from and how are you going to pay for it?"
He also warned against the constitutional risks of a DUP deal "playing one part of the UK off against another".
"If we have learned nothing else in the last ten years we have surely learned that the future of the UK as a constitutional union is not to be taken for granted."
DUP wants an end to 'dark tunnel of austerity'
Mrs May was told that the DUP expects to see more money spent on health and education, with an end to the "dark tunnel of austerity".
DUP deputy leader Nigel Dodds also said the UK must deliver Brexit, telling the Commons people voted to leave the European single market and customs union at the 2016 EU referendum.
He added the DUP's focus will also be on strengthening the union, combating terrorism, keeping Northern Ireland "moving forward" and prosperity.
Mr Dodds said: "It is in the furtherance of those objectives that we will act and vote in this Parliament over the next five years."
Mrs May's minority administration is expected to require support from the ten DUP MPs in order to govern and deliver on its policy pledges.
Mr Dodds made clear his party's intentions as he replied to the Queen's Speech.
The Belfast North MP said the economic outlook of Northern Ireland would be "easier to predict" with "stable" government both in Belfast and Westminster.
He told MPs: "The electorate sent a very clear message to politicians about austerity at the election, and I think that it's very clear since that election that people have to listen to what the people said."
Addressing Brexit, Mr Dodds earlier said attempts to "undermine or subvert" the democratic vote in June 2016 would be "catastrophic".
He said he welcomed assurances from the UK and EU negotiators to find "sensible outcomes" to the challenges facing NI - including the border with the Republic of Ireland.
Mr Dodds went on: "We've heard some debate today about membership of the single market and the customs union, and we've heard talk about special status for Northern Ireland within the European Union.
"Let me make it very clear - I believe when people voted in the European Union referendum to leave the European Union that they voted to leave the single market and customs union.
"And I believe that Northern Ireland must, along with the rest of the United Kingdom, do likewise.
"We must not get into a situation where we have borders erected between the island of Ireland and the rest of the United Kingdom."
He said a move to create borders would be "totally unacceptable", with "imaginative" ideas and flexibility needed to ensure there is an open border which is "as frictionless as possible".