British Energy owns eight of the UK's 10 operational nuclear power plants, and a takeover would potentially hand its new owner a monopoly on the construction of a new generation of facilities.
EDF were considered likely to complete this acquisition today, in a joint takeover with British Gas owner Centrica, rumoured to be ready to take a 25% stake in British Energy.
However, the deal collapsed last night, with EDF releasing a statement saying: "After in depth discussions, EDF considers that the conditions for a major development in Great Britain are not met to date."
It is reported by several newspapers that several large shareholders of British Energy asked EDF to up the price of their bid at the last moment, and the French generator chose instead to walk away.
Only last week British Energy released a statement claiming that it was in advanced discussions with one party over a possible takeover.
However, a spokesman for the generator last night said : "Further to the announcement made on 24 July 2008, advanced discussions with a party have continued but without agreement to date. A further announcement will be made in due course."
Commenting on the developments, Business Secretary John Hutton said: ""I am disappointed that talks between British Energy and EDF have not yet been successful. We thought it was a good deal and we were ready to accept. EDF is the world's largest nuclear operator. It would have been a sensible way to take forward new nuclear plans in the UK.
"That wasn't the view of all of the shareholders and the government is a minority shareholder in a publicly listed company. It is a now matter for both Boards to see how to proceed.
"Our commitment to nuclear power is clear and nuclear new build does not depend on one single deal. BE still has potential sites: and sites are available from the Nuclear Decommissioning Authority.
"The level of interest in nuclear new build in the UK from EDF and from other operators remains high.
"Recent developments in energy markets underline the need for new nuclear to combat high fossil fuel prices, climate change and security of supply."