Ministers are planning new legislation that would override a key part of last year’s EU withdrawal agreement.
The move would eliminate a requirement for new Northern Ireland customs arrangements, which are intended to prevent the return of checks at the border with the Irish Republic.
Labour attacked the plan. No 10 says it is a standby in case trade talks fail.
Boris Johnson is expected to say later that if no agreement is reached by 15 October, both sides should “move on”.
The prime minister will tell EU counterparts that completing the UK’s exit from the bloc without a trade deal would still be a “good outcome”.
It comes after UK chief negotiator David Frost said the UK was not “scared” of walking away .
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Although Britain formally left the EU in January, the UK has continued to follow rules set in Brussels during a transition period – which ends in December – while discussions over a long-term trade agreement continue.
Another round of talks – the eighth – begins on Tuesday, aimed at securing a deal to allow companies in the EU and UK to trade without taxes or customs checks.
But on the eve of negotiations resuming, the Financial Times reported that the Internal Market Bill would tear up an agreement struck less than a year ago.
It would also override provisions on state aid – the financial assistance sometimes given by the government to companies – which has been one of the key sticking points in talks.
BBC political correspondent Chris Mason described it as an “electrifying development in the Brexit process” that would “attempt to free the UK of an obligation… to check goods crossing from Great Britain to Northern Ireland”.
That obligation aimed to prevent the return of infrastructure, such as border posts, along the UK’s border with the Irish Republic, which many fear could prove detrimental to peace.
Labour shadow Northern Ireland secretary Louise Haigh said: “It beggars belief that the government is – yet again – playing a dangerous game in Northern Ireland and sacrificing our international standing at the altar of the prime minister’s incompetence.”