Reuters cited Finland Economy Ministry energy department head Esa Harmala as saying, "The European Commission did not approve the model proposed to them."

In February, Estonia and Finland joined forces to build two new liquefied natural gas (LNG) terminals on either side of the Gulf of Finland and a pipeline connecting the two countries.

The ministry said that the negotiations for the project will continue over the next few months.

According to analysts each LNG terminal is expected to cost around €500m ($680m) and will provide an alternative to gas supplies from Russia.

However, the pipeline which connects Finland and Estonia to share imports is likely to cost some €100m.

Currently, Russia’s Gazprom supplies about 10 billion cubic meters of gas per year to Finland and the three Baltic states of Estonia, Latvia and Lithuania.