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British Energy's proposed takeover from French-owned EDF is on the rocks, putting the government's energy policy in peril.

The nuclear generating firm has been in talks with EDF, but today British Energy announced there was now "no certainty" in the discussions.

A £12bn deal for the firm was expected, but recent energy price rises have seen shareholders demand a greater price.

A short statement read: "Further to the announcement made on July 24th 2008, advanced discussions with a party have continued but without agreement to date. A further announcement will be made in due course.

"There can be no certainty that the discussions will lead to an offer being made for British Energy Group."

Last week the firm said the talks were at an "advanced" stage.

The government currently owns 35 per cent of British Energy and a sale could have raised some £4 billion for the Treasury.

The deal was also central to the government's energy plans for the nation, with the hope a sale would lead to the creation of new nuclear power stations.

The Department for Business for Enterprise & Regulatory Reform (BERR) stated the deal scuppered by some of the larger shareholders.

Business Secretary John Hutton said: "I am disappointed that talks between British Energy and EDF have not yet been successful. We thought it was a good deal and we were ready to accept.

"EDF is the world's largest nuclear operator. It would have been a sensible way to take forward new nuclear plans in the UK."

"That wasn't the view of all of the shareholders and the government is a minority shareholder in a publicly listed company. It is a now matter for both boards to see how to proceed."

He added the government's commitment to nuclear power is remained and new energy plants do not depend on one single deal.

"The level of interest in nuclear new build in the UK from EDF and from other operators remains high," Mr Hutton said.

"Recent developments in energy markets underline the need for new nuclear to combat high fossil fuel prices, climate change and security of supply."

An EDF statement read: "After in depth discussions, EDF considers that the conditions for a major development in Great Britain are not met to date."

The firm – 85 per cent owned by the French state - also announced a 3.9 per cent rise in profits for the year.

At 10:11 BST the British Energy share price fell 4.52 per cent to 696.50p