Taoiseach Micheál Martin has warned the situation surrounding the Northern Ireland Protocol is "volatile" but signalled that progress on finding a resolution has been made today.
It comes as the UK Brexit minister David Frost warned the EU to avoid “massive and disproportionate retaliation” if London carries out its threat to set aside the Northern Ireland’s special trade status.
But the EU governments have agreed to prepare retaliatory measures if needed.
The Taoiseach again urged both sides to pull back from the brink and intensify talks to avoid what he said was an unnecessary clash.
Speaking to the Fianna Fáil parliamentary party this evening, Mr Martin said he had spoken to political leaders in Northern Ireland and the “general consensus” is they do not want the North’s access to the EU’s single market threatened.
In London Mr Frost again said Britain can trigger emergency provisions in the Brexit deal – a device referred to as Article 16 – in a threat which has cast a deep shadow over EU-UK talks trying to resolve the crux.
However he urged the EU to “stay calm and keep things in proportion”.
Mr Martin told TDs and Senators that Mr Frost’s call for calm today had "dialled down" tensions between Britain and the EU.
The Taoiseach told his party members he had been given an indication that Prime Minister Boris Johnson had not made a decision on triggering Article 16 which will potentially lead to a trade war with the EU and raise serious problems for cross border trade on the island of Ireland.
A source at the meeting said the Taoiseach said: “The situation is volatile and fluid but indications are better today than the last couple of days.”
Mr Martin also told colleagues the EU is in “solution mode” and he expects the talks to take another two or three weeks.
The Taoiseach said he hoped the talks can yield a resolution but the situation is “challenging and serious”.
He said the consequences of the talks collapse are “serious for people north and south”.
As Mr Frost minister was speaking in the House of Lords, the EU’s chief Brexit negotiator, Maros Sefcovic, was briefing member state ambassadors in Brussels.
Several member states, led by France, want a retaliation plan put in place if the UK triggers the emergency provision.
Both lead negotiators are due to meet again in London on Friday to assess the negotiations and Mr Frost also told his colleagues in the UK upper house of parliament he was still committed to the talks.
But he also conceded he feared EU-UK relations can worsen in the near future.
“They seem to be claiming that it will be entirely unreasonable for the British government uniquely to use these wholly legitimate safeguard provisions. They're also suggesting that we can only take that action at the price of massive and disproportionate retaliation,” Mr Frost told the Lords.
“I gently suggest that our European friends should stay calm and keep things in proportion,” he added.
Since the final phase of the EU-UK separation kicked on January 1, Britain has refused to implement some border checks agreed for the North as a way to avoid a hard frontier on the island of Ireland.
Despite negotiating and signing up to all of this himself, Mr Frost now says the checks are disproportionate and threaten Northern Ireland's 1998 peace deal.
The EU insists tight controls are needed to protect its single market of 450 million people and avoid the North becoming a “back door” for products which do not meet Brussels standards. But in negotiations Brussels has offered to abolish 80pc of product checks and 50pc of customs controls while also allowing medicines move freely to the North from Britain.
Foreign Affairs Minister Simon Coveney has suggested that triggering Article 16, which allows either side effectively apply an emergency break if they believe the agreement is damaging their interests, would mean the December 2020 EU-UK trade deal would have to be set aside.
Tánaiste Leo Varadkar doubled down on this warning by saying there was no guarantee these actions will get London an improved deal.
Mr Frost insists that Brussels needs to go further with concessions and also rejects the EU’s insistence that the European Court must be the final arbiter of disputes concerning trade in the North.
EU governments have now agreed the need for “robust” action against Britain if London follows through on its threat, Brussels officials said after the ambassadors’ meeting.
“The EU is preparing for the triggering of Article 16 by the UK. There is consensus among EU member states that such an arbitrary and unjustified move by the UK will be met with a clear European response,” one EU diplomat said.
Among the options open to the EU are trade sanctions up to the total suspension of the so-called ‘Trade and Cooperation Agreement’ agreed by both sides last Christmas Eve, which frames trade and other relations in a post-Brexit world. A host of lesser sanctions like withdrawing co-operation are also possible.
It is not clear when the next step will be taken. Most observers believed no escalation would happen as long as UK were hosting the COP26 climate change global summit in Glasgow which ends on Friday.
Negotiations are likely to continue into next week at least and Mr Frost said he will stick with them and try for a result.
“There is still a real opportunity to turn away from confrontation to move beyond these current difficulties. I certainly will not give up on this process, unless and until, it is abundantly clear that nothing more can be done. We are certainly not at that point yet,” the UK Brexit minister said.