Council officials are to hold talks with the preferred bidder for Cheshire's £850m waste plans in a bid to rescue the project.
Councils had been on the verge of a 25-year contract with Viridor until the government withdrew £100m of support.
Officials have met with the Department of Environment, Food and Rural Affairs (Defra) and are considering action.
In the mean time officials are meeting Viridor in a bid to overcome the funding shortfall.
Both Cheshire West and Chester (CWAC) and Cheshire East councils have already indicated they will appeal against the government's decision and said a "formal challenge" could not be ruled out.
The Cheshire project was one of seven identified by the Department of Environment, Food and Rural Affairs (Defra) that it felt were no longer needed to meet 2020 EU landfill targets.
Cheshire West and Chester Councillor Lynn Riley, member for community and environment, said the project took five years and about £4m to reach the procurement stage.
"In the light of the current situation, we need to examine all the options open to us," she said.
"It is only common sense that we should talk to the company that had been chosen after such a careful selection process, to see whether there is the facility within the current procurement to help overcome the funding shortfall."
Officers from both authorities have met with Defra officials to discuss the government's reasons for selecting the Cheshire scheme, and are reviewing the information they were given.
"We cannot at this stage rule out a formal challenge against the decision to withdraw support for this crucially important scheme."
Waste Management company Viridor had proposed a waste treatment plant at the former INEOS chemical works in Northwich, which would produce solid fuel from household waste.
It would then be transported by rail to a purpose built power station in Runcorn to generate energy.
"Viridor can confirm that it is communicating with the procurement team of the client authorities regarding the Cheshire Household Waste contract to discuss the current situation," said a company spokeswoman.