Senior politicians have rejected the newspaper industry's version of a royal charter setting up a press regulator, the BBC's Newsnight has reported.
A source said a sub-committee of the Privy Council, containing Lib Dem and Tory cabinet ministers, thought the proposals were "flawed".
But sub-committee chair Danny Alexander insisted no decision had been made.
The full Privy Council is also looking at an alternative plan backed by politicians and campaigners.
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