Britain said on Friday it was "disappointing" that talks with Brussels to access a $174 billion EU scheme to bolster Europe's defences had failed amid disagreement over the entry fee.
The SAFE (Security Action for Europe) scheme will provide EU countries with $174 billion of loans at lower rates to help them rearm.
London and Brussels had been wrangling over the level of contribution the UK would make to join the scheme, which would have allowed Britain to secure more lucrative access for its arms manufacturers.
EU relations minister Nick Thomas-Symonds said in a statement that it was "disappointing that we have not been able to conclude discussions on UK participation in the first round of SAFE".
But he noted the UK defence industry "will still be able to participate in projects through SAFE on third-country terms".
"Our position was always clear: we will only sign agreements that are in the national interest and provide value for money," Thomas-Symonds added.
EU countries are obliged to spend the loaned money on weapons that are at least 65 percent produced in the bloc.
If Britain had joined, that figure would have been reduced for London, meaning British firms could try to cash in more.
Both sides said the negotiations had been conducted in "good faith", with the European Commission also stressing that Britain can still participate in up to 35 percent of SAFE procurements.
It added that talks with Canada about its participation continue, "and we hope to find an agreement before Sunday".
EU officials previously said the bloc had asked London to contribute up to $7.5 billion to join the SAFE scheme.
But Britain, which left the EU in 2020 following its Brexit split, baulked at that price tag and had pushed for a better deal, according to diplomatic sources.
Poland, Romania, France and Hungary were among the biggest claimants for money under SAFE when Brussels unveiled its funding allocations in September.
Poland snapped up loans worth almost $51 billion, followed by Romania $19.3 billion, and France and Hungary $18.7 billion each, according to preliminary figures.
