The Prime Minister is understood to be unable to deliver the controversial policy, which is a key LibDem aim, amid continued opposition from his own Tory back benches.
But the LibDems came out fighting yesterday, making it clear the case for a widespread shake-up of electoral boundaries would be "weakened" if plans to elect peers were ditched.
Last month, the Coalition was forced to pull a Commons vote on reform of the upper chamber in the face of a threatened rebellion by Tory backbenchers.
At the time the Prime Minister pledged he would make one last attempt to find a way through the impasse.
Conservative MPs insist changes to the House of Lords should not be a priority when the UK's economy is in recession.
But the LibDems are incensed at the prospect of losing one of their key policies, a measure which every major political party included in its manifesto for the 2010 General Election.
The party has made it clear the two issues are linked and there will be consequences for the boundary changes if Lords reform is dumped.
LibDem sources said they expected Mr Cameron to stand firm on his pledges, adding: "They know where we stand on this."
However, a number of senior Tories reject the idea the two policies are connected and believe abandoning Lords reform should have no long-term effect on the Coalition. It is understood discussions are continuing between the two parties in an attempt to find a way forward.
The row comes at a difficult time for Mr Cameron's Government, as ministers from both parties draft a new agreement on their joint future priorities.
The proposed boundary changes flow from a Conservative policy – to cut the number of MPs from 650 to 600.
But the LibDems are also keenly aware the shake-up is predicted to give the Conservatives an extra 20 safe seats at the next General Election – increasing Tory chances of winning an outright majority and forming a government without the need for a junior coalition partner.
Last night, LibDem peer Lord Rennard warned, "if the Lords is not to be given more legitimacy, then the case for reducing the number of MPs – and increasing the proportion of the payroll vote in the Commons – will also be weakened".
However, he appeared to deflect suggestions the issue could break up the Coalition saying his party recognised constitutional reform was not the most important aspect of its policy agenda.
Scotland is due to lose seven MPs in the changes, which would affect every seat in the UK.
A number of high-profile Scottish politicians, including LibDem Chief Secretary to the Treasury Danny Alexander, could also face battles with their own party colleagues for the newly created seats.
Labour, which has already accused the Coalition of gerrymandering on the proposed changes, would also benefit if they were ditched, as it faces a number of seat squeezes including in Glasgow.
Last night, the party claimed LibDem leader Nick Clegg had revealed his naivety by trusting the Conservatives to deliver on their promises.
Sadiq Khan, Labour's Shadow Justice Secretary, said: "We warned Nick Clegg that the real roadblock to reforming the Lords was the Tory Party – something we learned the hard way from our 13 years in Government.
"Nick Clegg marched his MPs through the voting lobbies in support of the harsh and unfair policies of this Tory-led Government in anticipation of receiving Lords reform in return. But now he may end up with nothing, ruthlessly exposing his naivety. "Millions of people struggling through the tough economic times will question his political priorities," Mr Khan added.
Contextual targeting label: