The UK's chief Brexit negotiator David Frost said that the country and the European Union (EU) still have "significant" differences over a free trade deal, and their post-Brexit talks will continue in Brussels next week.
Frost made the statement on Thursday night after the latest round of UK-EU trade talks ended in London without an agreement, reports Xinhua news agency.
The EU warned the UK of legal action over a controversial trade bill, known as the UK Internal Market Bill which was published by the British government on Wednesday.
The bill is believed to override elements of Prime Minister Boris Johnson's Brexit deal with Brussels.
The UK Internal Markets Bill is intended to ensure Northern Ireland can continue to enjoy unfettered access to markets in the rest of the country.
It was published after the UK brushed aside warnings from the EU.
The bill will be formally debated by MPs in Parliament for the first time on September 14.
In separate hastily arranged talks in London on Thursday, European Commission Vice President Maros Sefcovic demanded the UK withdraw the new bill "by the end of the month" or risk jeopardising trade talks.
Sefcovic said the divorce deal is "a legal obligation" and any action violating the Withdrawal Agreement would break international law.
However, Cabinet Office Minister Michael Gove, who met Sefcovic in an emergency joint committee meeting, made it "perfectly clear" that London was not prepared to back down.
"I made it perfectly clear to vice president Sefcovic that we would not be withdrawing this legislation. He understood that. Of course he regretted it," he told reporters after their meeting.
The EU said the on-going situation had "seriously damaged trust" and it would take legal action against the UK.
EU chief negotiator Michel Barnier said after the latest round of negotiations that "trust and confidence are and will be key" in the talks.
The UK ended its EU membership on January 31 but is still following EU rules during the transition period until December 31 to enable a permanent future trade deal to be reached.
During this period, the UK would have to pay into EU funds but have no say in laws imposed by Brussels.
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