Talks between cash-strapped MG Rover and China's Shanghai Automotive Industry Corporation reportedly stalled on Monday night, raising the prospect of thousands of job losses in Rover's West Midlands home territory.

The Daily Telegraph reported that pressure has been mounting on the two sides to agree terms since officials from the UK's Department of Trade and Industry flew to Shanghai last week to try to smooth the deal with a pledge of a £100 million bridging loan from the government, but officials reportedly claimed that the talks had run into trouble and that the Chinese were now pressuring the four men who own MG Rover, through parent company Phoenix Venture Holdings, to come back with better financial terms.

One official told the newspaper: "The talks have stalled and the Chinese are looking for the PVH directors to come forward with new proposals." The official reportedly added that the DTI now believed there was a risk that MG Rover would be "technically insolvent" even if the £100 million loan, which remains on the table, was agreed.

"The Rover position is worse than both we and the Chinese thought. The issue is about solvency past the deal," he said, according to the Daily Telegraph.

The paper said the news appeared to catch representatives from MG Rover and Shanghai Automotive unawares, with neither side able to confirm that talks had stalled.

The Telegraph noted that suggestions that the government was worried about MG Rover's future first emerged last Friday night when the DTI revealed that it was sending officials to Shanghai.

A spokesman reportedly said then: "The government is … also considering a package of immediate support and financial assistance for the workers, their families and communities that would be affected."

The Telegraph said the two sides have been in talks about the proposed takeover since last November - under the terms outlined then, the Chinese company, which has already invested £67 million in the company [for the rights to build Rover's K-series engine], was due to take a 75% stake in a new joint venture company set up to control MG Rover.

However, Chinese confidence in MG Rover has ebbed as its financial problems became apparent, the Daily Telegraph said. One source told the paper: "When an inch of the skirt was lifted, it revealed a whole can of worms."

By Monday, the loan reportedly was seen as pivotal to MG Rover's future. One source told the paper: "If the loan is not agreed then the Chinese will walk away from the deal. The solvency issue is absolutely crucial. Without the loan, Rover is in a precarious position. It is pressing enough for the Chinese to consider pulling out. Everybody knows the seriousness of this thing."

The Daily Telegraph said British government ministers had made it a condition that the four men, who have made more than £30 million for themselves since buying MG Rover for just £10 in 2000, should match the investment with "several millions" from their own fortunes - the four have been heavily criticised for handing themselves a four-way split of a £10 million "IOU" note within months of the deal completing in 2000, also set up a £16.5 million pension fund for company directors and separately took control of a lucrative car financing business.

A further complication was that the loan would have to be agreed with opposition parties if the talks concluded after the UK parliament has been dissolved ahead of the general election [expected on May 5], the Daily Telegraph added.