Talks between the Government and the Massachusetts Institute of Technology (MIT) over the future of MediaLab Europe will drag on until the new year.

It is understood the State has offered to provide more public funding to help keep the flagship research institute afloat if MIT agrees to a shake-up of its governance and board structure.

The Government is also seeking to renegotiate the existing contract between the State and MIT to formalise the US college's relationship with MediaLab Europe. This would see MIT personnel become more engaged with its Irish partner and offering degree programmes.

Crisis talks between the MIT chancellor, Prof Phil Clay, and the Minister for Communications, Marine and Natural Resources, Mr Dempsey, have helped bring the two sides closer to agreement on these issues, according to informed sources.

However, a spokesman for the Department of Communications said yesterday that the Government was still looking at the MediaLab issue and it would now be dealt with in the new year.

The future of the Digital Hub's flagship research institute, MediaLab Europe, will have to be decided early in the new year due to the scale of its cash crisis.

Results published by MediaLab Europe earlier this year showed that the college spent €5.6 million more than it raised in funding in 2003. Without State intervention it is expected to run out of cash by the middle of 2005.

A Government report on MediaLab Europe drawn up by consultant Mr Tom Higgins is understood to have criticised strongly governance at the college. It also pinpointed the board, whereby MIT and the State appoint an equal numbers of directors, as an issue.

The Government now wants to take control of the board. It also wants to tie research to corporate needs and link with colleges.