Michel Barnier has warned that Britain must be prepared to respect the EU’s sovereignty if talks on a post-Brexit trade deal are to succeed.

Brussels chief negotiator said the EU remained committed to achieving “a fair, reciprocal and balanced agreement” but said both sides needed to be able to act when their interests were at stake.

His comments came after a UK Government source warned that the negotiations would fail unless there was a “substantial shift” in the EU’s position in the remaining days of the talks.

The British side has accused the EU of making “unreasonable demands” and of failing to respect UK sovereignty over fishing rights and fair competition rules.

In a statement posted on Twitter, Mr Barnier said the talks with the UK’s chief negotiator Lord Frost were at a “crucial moment”.

“The EU remains committed to a fair, reciprocal and balanced agreement. We respect the sovereignty of the UK. And we expect the same,” he said.

“Both the EU and the UK must have the right to set their own laws and control their own waters. And we should both be able to act when our interests are at stake.”

Talks have been continuing in Brussels over the weekend but UK sources said it was looking increasingly likely the Brexit transition period will end on December 31 without an agreement.

A Government source said: “Unfortunately, the EU are still struggling to get the flexibility needed from member states and are continuing to make demands that are incompatible with our independence.

“We cannot accept a deal that doesn’t leave us in control of our own laws or waters.

“We’re continuing to try every possible path to an agreement but without a substantial shift from the Commission we will be leaving on World Trade Organisation (WTO) terms on December 31.”

Health Secretary Matt Hancock said he believed a deal was still possible but said it would require movement on the EU side.

“We want these talks to reach a positive conclusion. I think everybody wants a deal. Unfortunately, the EU have put in some unreasonable demands,” he told Sky News’s Sophy Ridge On Sunday programme.

“I’m sure that a deal can be done but obviously it needs movement on the EU side.”

The European Parliament has said the talks need to be concluded by Sunday evening if it is to ratify any deal before the transition ends.

However, EU leaders could provisionally sign off on any agreement – leaving ratification to 2021 – and the British side expects the talks to continue a few days longer in the week leading up to Christmas.

If there is no deal by December 31, the UK will leave the single market and customs union and begin trading with the EU on WTO terms – with the imposition of tariffs potentially leading to higher prices in the shops.