Transport Minister Paschal Donohoe last night said that the Government is still "evaluating what the best decision is for Aer Lingus and the country".
He made his remarks as shares in the airline fell almost 10pc amid reports that the Government is preparing to reject IAG's indicative offer to buy a 25pc stake in the Irish airline.
Bloomberg reported that a source close to the deal had been told the Government will refuse the deal.
Aer Lingus shares dropped as much as 21 cents to €2 in Dublin and IAG dropped as much as 1.8pc
However, Government officials last night moved to steady the share price by stressing that contacts with the bidders IAG were continuing and no government decision would be taken for some time to come.
Mr Donohoe said the Government is still evaluating the best course for the airline.
"Many different factors will be considered. Connectivity and the ability to grow employment remain vital concerns," he said.
A Labour spokesman last night said Bloomberg wire reports of the deal being rejected were "premature".
Mr Donohoe is expected to brief his cabinet colleagues when they meet this morning, but the bid will not be decided,
The Department of Transport said interdepartmental steering group examining the bid for Aer Lingus will be engaging further with IAG.
Bloomberg has been quoting an unnamed source close to the negotiations that the Government is preparing to reject IAG's offer.
Last week, IAG chief executive Willie Walsh offered assurances on maintaining Aer Lingus routes between Ireland and the UK as he sought to overcome mounting political resistance to the proposed takeover of the airline he ran until 2005.
IAG has said it won't proceed without the endorsement of the Government.
"There is a broader understanding by government politicians that the future of Aer Lingus is probably going to be in someone else's hands as part of a group," said John Strickland, an analyst with JLS Consulting in London.
"It's just that the timing seems to be so sensitive with this election coming up."