London Underground maintenance firm Metronet Rail could go into administration after failing to receive bail-out money from its arbiter.
The public-private partnership (PPP), one of the government's flagship alliances between the two sectors, had asked for an additional £551 million.
It was only permitted £121 million by regulator Chris Bolt, leaving it with a funding shortfall which, analysts say, will require Treasury funds to rectify.
The PPP is now assessing the "full impact on its business" of this decision, which Mr Bolt admitted on the Today programme endangered it.
"That's a matter for Metronet to look at the basis of my conclusion and to work out what the implications are," he said.
"What they have asked for is an initial payment, effectively a payment on account, and that's what today's decision covers.
"They've also asked for additional money for the whole of the current seven and a half year review period which finishes in 2010, and I've still got a lot of work to do to review the full claim covering that period."
Metronet is due to spend £17 billion over a 30-year period on upgrading nine London Underground lines, providing new trains, new signalling and refurbished stations.
Mr Bolt said much of this work would not be completed if the funds were not forthcoming, but said Metronet had not been "efficient and economic" to deserve the extra funds it was requesting.