India says a proposal to take its $1bn gas pipeline to Burma through Bangladesh is "as good as shelved".
A senior official of the Gas Authority of India said the line would instead go via India's north-east to Burma. The move could add $290m to the cost, according to a BBC report.
Dhaka, which had asked for major trade concessions to allow the transit, said it had no objections to another route.
Bangladesh could earn as much as $125m a year in transit fees and other service charges from the pipeline.
Proshanto Banerji, chairman of Gas Authority of India, told reporters in the north-eastern Indian city of Guwahati: "The Bangladesh route is as good as shelved.
"Our past experience shows we get into all kinds of trouble when we try to work through a third country," he said.
The new pipeline will have to be 40 per cent longer than the 850km Bangladesh route.
Mahmudur Rahman, the adviser to Bangladesh's energy minister, said Dhaka had no objections if India chose to use another route.
"In commercial negotiations, every party will try to get maximum benefit and there is no harm in it," Rahman told the BBC.
Burma is keen on India finalising the pipeline project soon to transport gas from its Arakan province for the energy-hungry Indian market.
Burmese energy minister, Lun Thi, told Indian officials during a recent meeting in Delhi that the pressure was on India because China and Thailand also wanted the Arakan gas.
The Burmese, Indian and Bangladeshi governments agreed in principle to co-operate on the gas pipeline and exploration project in January.
But Bangladesh has failed so far to agree to pipeline terms.
Dhaka has asked for major trade and transit concessions for allowing the pipeline to be laid through its territory.
Indian Petroleum Minister Mani Shankar Aiyar visited Bangladesh last month to try to finalise the deal.
Aiyar had said ''the ice is melting'' but a deal was not in sight as yet.
India is looking for more fuel as demand soars with its rapid economic growth.
Last week India struck a 25-year deal with Iran to import 7.5m tonnes of liquefied natural gas from 2009.