AMERICAN International Group has rejected Prudential's move to lower the price its is offering for the company's Asian arm AIA.
The snub threatens to derail the industry's largest ever transaction.
Prudential said in a statement it had proposed to cut the deal's value to $30.38bn (£20.9bn) – offering $23bn in cash and about 2.16bn new Prudential shares.
The company reopened negotiations last week in a bid to salvage the deal for Hong Kong-based AIA after some Prudential shareholders claimed the company was overpaying.
Prudential was seeking $21bn from investors to partly fund the transaction, the biggest-ever rights offer by a British company.
Shareholders are due to vote on the deal on 7 June.
A collapse of the deal would be a blow to AIG boss Robert Benmosche, who wants to repay part of the $132bn bailout the US insurer received in 2008 to stay in business.
It would also put Prudential CEO Tidjane Thiam in a tough position as he had championed the
AIA deal, the insurance sector's biggest-ever takeover, arguing it gave the 162-year-old British insurer a rare opportunity for a commanding presence in fast-growth Asia.