The UK government has been forced to shelve its legislation to hand the Chagos Islands back to Mauritius, after the US dropped its support for the agreement.

On Friday, UK government officials acknowledged that they had run out of time to pass legislation within the current parliamentary session, which ends in the coming weeks.

The latest setback in the UK’s push to hand the Chagos Islands back to Mauritius, which hosts a joint US-UK Diego Garcia military base, is a sign of the worsening US-UK relations after Donald Trump’s heavy criticism of Keir Starmer over his handling of the Iran war.

The US president has previously criticised the plan, which is backed by the US state department, telling Starmer he was “making a big mistake” by handing sovereignty of the islands to Mauritius in exchange for the UK and US being allowed to continue using their airbase.

However, earlier in February Trump had described it as the “best” deal the prime minister could make in the circumstances. The US president also endorsed the handover when Starmer visited the White House last year.

Under the deal, the UK would cede sovereignty of the Chagos Islands to Mauritius, and lease the largest island of the achipelago, Diego Garcia, for 99 years to continue operating the joint military base there.

The US had not formally exchanged letters to amend a 1966 British-American treaty on islands that is understood to have forced the UK to drop its bill.

Now, a new Chagos bill is not expected to feature in the king’s speech in May, where the government’s agenda for the coming parliament is revealed.

In February, the Guardian reported Trump changed his mind on supporting the deal because the UK would not permit its airbases to be used for a pre-emptive US strike on Iran.

Last month, Iran struck the joint military base after warning British lives were in danger, after Starmer authorised the US to carry out further strikes from British bases.

At the time, Hamish Falconer, a Foreign Office minister and former diplomat, had told MPs that discussions with American counterparts were paused and that the ongoing process through parliament in relation to the treaty would be brought back at an appropriate time.

Starmer has allowed US forced to use UK bases, such as Diego Garcia, only for defensive missions against Iran. This month, he faced increase pressure to limit access after Trump threatened “a whole civilisation” would die if Iran ignored his demands, before a ceasefire was later agreed.

In an effort to contain the confusion surrounding Falconer’s comments, the Foreign Office said there was no pause or set deadline, and timings would be announced “in the usual way”.

The government has been approached for comment.