Theresa May and Irish premier Leo Varadkar have said it is still possible to revive powersharing in Northern Ireland.
The two leaders spoke on the phone about the latest twist in the political deadlock at Stormont as the UK Prime Minister’s Government makes preparations to impose a budget on the region by the end of the month.
In a statement from the Taoiseach’s office while he is on a trade mission to the US west coast, the leaders said the gap between the two sides is narrow.
“Both leaders also expressed the view that it is still possible to form an executive which would be in the interests of all the people of Northern Ireland,” an Irish Government spokesman said.
Mr Varadkar told Mrs May there could be no return to direct rule like it was before the 1998 Good Friday Agreement.
The Taoiseach’s office said Mrs May made it clear she did not want to see a return to Westminster running all of Northern Ireland’s affairs and that budget preparations were not the first step on that road.
“Both leaders agreed that there is still time to reach an agreement,” Mr Varadkar’s office said.
Northern Ireland Secretary of State James Brokenshire is to outline the state of powersharing talks when he addresses the House of Commons.
The DUP and Sinn Fein failed to meet Mr Brokenshire’s original Monday deadline for a deal, after Stormont had been effectively in limbo since January.
Irish language rights and other cultural issues are the main sticking points.
Despite the deadlock Mrs May is understood to remain committed to a £1 billion investment in Northern Ireland agreed as part of a voting pact between the Conservatives and the DUP at Westminster.