France and Germany have concluded that the companies involved in building a joint fighter jet will not be able to reach an agreement and have abandoned the project, officials in Berlin have said in a blow to Europe’s common defence efforts.

The French president, Emmanuel Macron, and the German chancellor, Friedrich Merz, had “reached the shared assessment that the companies will not be able to come together”, an official told Agence France-Presse. “They acknowledge this reality.”

Macron and Merz’s predecessor, Angela Merkel, launched the Future Combat Air System (FCAS) in 2017 to replace France’s Rafale jets and the Eurofighter used by Germany and Spain by about 2040.

But the €100bn project has been dogged by disagreements between the companies involved – France’s Dassault Aviation and the European aerospace group Airbus, representing German and Spanish interests – over leadership and control of the development programme.

Dassault reportedly insisted on being the lead partner in the jet’s development in order to protect its intellectual property, while Airbus pushed for a more equal partnership involving significant technology transfers.

Paris and Berlin were also understood to be at loggerheads over the type of jet, with France seeking a single European model but Germany saying its needs were not the same because French planes needed to carry nuclear weapons and land on aircraft carriers.

Merz has previously openly questioned whether developing a crewed sixth-generation fighter jet still makes sense for his country’s air force, and has said EU member states do not all have the same military hardware requirements.

The abandonment of the FCAS project is a heavy blow to efforts by European countries to cooperate more closely on defence, after decades of underinvestment and faced with a hostile Russia and an increasingly unreliable US.

The programme includes the jet fighter at the heart of the disagreement, but also drones and a high-security combat data cloud. European sources told Reuters it was possible the development of the latter two elements could continue.

A German government source also told AFP: “The actual core of FCAS is to be continued as a European system,” describing it as a “nervous system that networks aircraft, drones and other components into an integrated whole”.

Macron’s office did not immediately comment. With French elections scheduled for next year, Paris is understood to see some form of positive outcome from one of the outgoing president’s landmark projects as important.

German government sources said Merz and Macron had discussed the decision to announce an end to the troubled project on Friday on the sidelines of a summit between EU and western Balkans leaders in Montenegro.

Both had previously tried unsuccessfully to persuade Airbus and Dassault to reach agreement, but despite last-ditch efforts to salvage the project and public declarations by both leaders that they were determined for it to succeed, the rift between Paris and Berlin had become increasingly clear in recent months.

Two mediators, one from each country, were tasked in March with coming up with proposals to rescue the initiative but were unable to do so, while the head of Dassault insisted the company could handle the project alone and did not want it to be “co-managed”.

There was no immediate comment on Monday from Dassault or Airbus.