Donegal County Council may have to be directly taken over by the Department of the Environment.
A three-day council meeting was suspended last night without a deal to agree a Budget for 2014.
Fianna Fáil and Sinn Féin are blocking a budget deal to protest the transfer of the water network to the new Irish Water company.
Councillors have agreed to one final meeting next Monday - but if no budget is passed, the councillors will be sacked and the Department will take over.
Donegal County Council to fall. Sinn Féin reject austerity budget that facilities gov to tax families more & reduces services.
— Pearse Doherty (@PearseDoherty) January 8, 2014
Sinn Féin’s Mick Quinn said his party was not given a mandate to implement water charges and will not support a budget that increases taxes and reduces services.
"Sinn Féin will not be involved in any process that will further increase taxes and reduce services for families across Donegalk," he said.
"We were not given a mandate to introduce water charges and we will not be doing Minister Hogan’s dirty work for him."
Fianna Fáil councillor Seamus O'Domhnaill says the council must be compensated for handing over the water network.
"The takeover of water assets within our county by Irish Water is due to take place in the coming weeks," he said.
"We have assets to the tune of €355m, which we were expected - as a Council - to hand over without any recompense or without any structured recompense happening to the county.
"We were not prepared to do that."