Pakistan on Tuesday said that work on a pipeline to import gas from Iran cannot proceed because of sanctions imposed by the United Sates and the European Union on Tehran.
The Iranian side of the $7.5-billion project is almost complete, but Pakistan has run into repeated problems paying for the 780 kilometre (485 mile) section to be built on its side of the border.
Last year, Pakistan asked Iran for $2 billion in financing to build its side of the controversial gas pipeline.
Iran has the second largest gas reserves in the world but has been strangled by a Western embargo that has seen its crude exports halved in the past year.
US officials have previously warned that the Iran-Pakistan pipeline project risks triggering sanctions aimed at Iran.
Pakistani petroleum minister Shahid Khaqan Abbasi told AFP on Tuesday that work on the pipeline could not go ahead because it falls under sanctions imposed by the US and EU.
"The work on the Pakistan-Iran gas pipeline project is not possible because of the sanctions imposed by the US and EU," Abbasi said.
"This project is affected by the sanctions imposed."
Iranian Oil Minister Bijan Zanganeh said that his country was ready to go ahead with the pipeline agreement.
Signup to our newsletter and follow us on Facebook and Twitter!
"Iran is committed to this gas agreement but until Pakistan has not officially relayed its stance, we cannot react and make a decision," he was quoted as saying Tuesday by the Mehr news agency.
In October, Zanganeh said he had "no hope" for the project, citing financial problems.
The long-delayed pipeline that would link the two neighbours was planned to ease Pakistan's chronic gas shortages.
Iran currently produces around 600 million cubic metres of gas per day, almost all of which is consumed domestically due to lack of exports.
Its only foreign client is Turkey, which buys about 30 million cubic metres of gas per day.
The Karachi stock exchange took fright when the countries' then-presidents Mahmoud Ahmadinejad and Asif Ali Zardari inaugurated a much-delayed section of pipeline in March last year.
Spooked by fears of US sanctions, the main index slumped almost 2.5 percent.
Gas supply in Pakistan is a major problem, particularly in winter when consumers often have to rely on liquid petroleum gas (LPG) cylinders.
Many Pakistanis have converted their cars to run on compressed natural gas (CNG) as a cheaper alternative to petrol and diesel.