Ministers will need "strong evidence" before pressing ahead with proposals for local pay deals in the public sector, Downing Street has said.
Chancellor George Osborne raised the prospect of local agreements in the public sector to reflect differing pay rates across the country in the Budget last March.
However, No 10 appears now to be backing away from the idea amid signs of growing concern across the coalition.
"Unless there is strong evidence and a good case for it, things won't change," said a Downing Street spokeswoman.
The public sector pay review bodies are looking at the scope for local agreements on the grounds that the present system of national pay bargaining drives up local wage rates in the private sector.
The plan is, however, reported to have run into opposition from the Liberal Democrats, with Deputy Prime Minister Nick Clegg said to be ready to veto the scheme amid fears of a backlash in northern England.
A Lib Dem source was quoted as telling The Independent: "It would play into all the claims our opponents make about the coalition."
Last week the Conservatives' only MP in the North East, Guy Opperman, the MP for Hexham, came out against the idea, saying there was no "economic argument" for local pay and that it could lead to pay cuts in the region.