The minister responsible for water charges says he will not introduce any scheme which does not charge people for wasteful usage.
Simon Coveney's position puts the Government on a major collision course with Fianna Fáil.
The 'Future of Water Charges' committee is on the brink of agreeing to scrap all charges, and will not impose one for so-called excessive use.
People who paid their bills are also likely to get a refund.
The two parties had agreed to implement the findings of an Oireachtas committee, which appears set to call for no domestic charges at all.
However, the Minister for Housing, Planning and Local Government says that regime would be illegal under EU law, and there is no way he can implement it.
Mr Coveney said: "We're happy to compromise within reason, but if that compromise involves us essentially doing something that exposes the State to legal action, then I don't think, as an office holder, I can facilitate that."
The group of 20 TDs is expected to finalise the contents of its report by Wednesday ahead of a Dáil vote due to take place in March.
The Irish Times has reported that the committee has reached agreement on a number of issues, including returning money to those who paid their bills.
According to the report, it is not known whether the refunds should come in the form of a cash payment, tax credit or some other system.