The border between the Irish Republic and British-ruled Northern Ireland has stymied a much anticipated Brexit deal between the UK and the European Union.

Brexit negotiations in Brussels appeared set to reach a landmark agreement on key issues that would have enabled the talks to progress to the next stage before they ended abruptly Tuesday morning (AEST).

The stumbling block was an agreement to keep Northern Ireland aligned with EU regulations and keep its border with the Irish Republic open.

British Prime Minister Theresa May broke off talks with the EU to speak to Northern Ireland DUP leader Arlene Foster, who said in a press conference her party “will not accept any form of regulatory divergence” that separates Northern Ireland from the rest of the UK.

Ms May told reporters differences remain with the EU on a “couple of issues” and that talks would reconvene “before the end of the week”, the BBC reported.

“I am also confident that we will conclude this positively,” Ms May said after a lunch with European Commission President Jean-Claude Juncker, who also voiced confidence in overcoming outstanding obstacles.

"On a couple of issues, some differences do remain" – UK PM Theresa May on failure to reach deal with EU in #Brexit talks https://t.co/UEqjIb9s51 pic.twitter.com/b5OqkrAsXy

— BBC Breaking News (@BBCBreaking) December 4, 2017

Mr Juncker said despite “significant progress” being made in recent days, “it was not possible to reach a complete agreement today”.

He insisted the meeting, after days of intensive talks behind the scenes, was “not a failure” and credited the Prime Minister with hanging tough.

They spoke after government sources in Dublin said London had agreed to keep Northern Ireland “aligned” to EU regulations to avoid a “hard border” with the Irish Republic.

Word of that provoked an angry response from May’s allies in Northern Ireland, demanding equal treatment with the rest of the UK.

The idea of Northern Ireland remaining closely linked to the EU single market prompted speculation that, to avoid new barriers between Belfast and London, the British mainland would have to follow suit.

British Prime Minister Theresa May (L) shakes hands with European Commission chief Jean-Claude Juncker prior Brexit negotiations. Photo: Getty

The leaders of Scotland and London, which voted against Brexit, demanded they be allowed the same EU relationship as Northern Ireland – but the British Prime Minister ruled out such differentiated treatment or staying in a customs union or the single market.

Both sides said they should unlock talks on future trade relations in the coming days.

The sudden announcement that no deal had been reached swiftly dampened optimism that had spread earlier Monday.

Irish government sources had said agreement had been reached on an overall deal for the Irish issues.

“The key phrase is a clear commitment to maintaining regulatory alignment in relation to the rules of the customs union and internal market which are required to support the Good Friday Agreement, the all-island economy and the border,” one of the Irish government sources said.

The Irish border, which is now completely unguarded and barely even marked, would not change its physical appearance after Britain leaves the EU, Irish Foreign Minister Simon Coveney said.

Fears that a “hard border” could disrupt the peace deal in the north had driven both sides to find solutions.

– with agencies