Ministers will be urged not to force through the election of a Sheffield City Region mayor - a central plank of the deal - in what would amount to a punishment to the area for the failure to deliver the agreement.
Ahead of today's meeting on the future of the deal, Local Government Secretary Sajid Javid had warned council leaders the Government was ready to force through the mayoral election with the cost picked up by local taxpayers.
It is understood Northern Powerhouse Minister Jake Berry was continuing to insist the Government's position would not change over the weekend.
That resolve will now be tested after the Sheffield City Region deal was put on hold and effectively scrapped.
The legal process for the election is already in place and, without a change of heart by ministers, next May will see a Sheffield City Region mayor elected with few powers and without the £30m a year promised under the terms of the deal.
The deal collapsed today as Barnsley and Doncaster stood by their decision to pursue an alternative approach to transferring decision-making powers and money from Whitehall.
The two authorities are among 17 councils across the region to sign up over the summer to the emerging One Yorkshire plan for an agreement to have a single elected mayor for the whole region.
Sheffield and Rotherham continued to back the Sheffield City Region deal at today's meeting but with Barnsley and Doncaster now opposed it cannot go ahead.
In the aftermath of the decision, South Yorkshire sources said the focus would now shift to testing the extent to which the Government's election threat was sincere or merely a tactic to try and force Barnsley and Doncaster to fall into line.
It is likely ministers will be told forcing through a meaningless election would see voters blaming the Government as much as local politicians.
Sheffield and Rotherham are also expected to stress to the Government that they should not suffer given their continued commitment to the deal.
One possible way forward would be for council leaders to be allowed to appoint an interim mayor while a way forward for the longer term is found.
Sheffield Council leader Julie Dore described the prospect of an election going ahead for a powerless mayor "ridiculous" as she called for the deal to go ahead as planned.