Theresa May's preferred option on Britain’s future customs arrangement with the EU has been rejected by most of her senior Cabinet colleagues, with one Tory Eurosceptic MP saying: “It’s dead.”

But Downing Street sources made clear the “customs partnership”, where Britain would collect tariffs on the EU’s behalf, and the alternative – a “streamlined customs arrangement” using new technology to avoid border checks – were still viable options.

Yet after three hours of the Prime Minister’s so-called Brexit War Cabinet, when colleagues thrashed out the pros and cons of both options, she decided to ask officials to draw up “revised proposals”.

It is understood that six of the 11-strong sub-committee came out against her preferred option of the customs partnership, including Sajid Javid, the new Home Secretary.

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Opponents believe it would tie Britain too closely to the European customs union and could threaten the ability to clinch trade deals with other countries. Environment Secretary Michael Gove has dismissed the proposal as “bonkers”.

In light of senior colleagues’ opposition, Andrew Bridgen, the Tory Brexiter backbencher, declared: “It’s dead.”

But his Conservative colleague Vicky Ford was equally adamant that “all options are still open”.

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Earlier, Mrs May gave an indication at Prime Minister’s Questions that securing agreement between the two factions in her Cabinet over the issue of future trading arrangements would not be easy. Labour’s Karen Buck pointed out the Government’s two proposals had already been dismissed by the EU and would, in any case, not be ready in time for when Britain left the bloc.

The PM responded by insisting Britain would quit the EU next March, leave the customs union and have an independent trade policy.

But she added: “There are a number of ways in which that can be delivered.”

Later, No 10 admitted the process of finding the right solution was “evolving”, which suggested that a third way was being considered beyond the two options of a customs partnership and so-called “Max Fac”.

Cabinet Office Minister David Lidington indicated a final decision might not yet be reached for “a few weeks”.

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His Cabinet colleague, David Mundell, said: “What I agree is that we should look in depth at the options that have been put forward. The full Cabinet will take a final decision and, obviously, I will play a part in that.”

Ian Blackford, the SNP leader, denounced the Government’s continuing deliberations as “farcical”.

The failure to settle on a firm plan comes after days of rumours that Cabinet “big beasts” could be prepared to resign rather than accept anything that smacked of continued customs union membership.