A A$7.3 billion ($7.1 billion) bid by the Singapore Exchange to take over its Australian rival is faltering as the Australian government, the regulator and a key opposition party are all set to reject it, the Sydney Morning Herald said.

The Foreign Investment Review Board was unlikely to support SGX's cash and share bid for the Australian Securities Exchange but even if it did, the Treasury, whose approval is also necessary, would stop the deal, the paper quoted a senior government source as saying on Saturday.

If (the FIRB) doesn't kill it, we will, the source told the paper.

In addition, the Nationals, a key party in the conservative opposition Coalition, would ferociously oppose the deal, Barnaby Joyce, a top party official, told the paper.

The deal, first announced in October, has already been under pressure from Australian politicians -- whose approval is necessary to lift a 15 percent shareholder cap -- as it was seen as ceding control over a key national institution and a de-facto monopoly.

The SGX last month improved the terms of its offer but it is still far from a merger of equals, as urged by several key political leaders, and SGX Chief Executive Magnus Bocker earlier this month told Reuters there would be no more incentives to win control of ASX.

Another argument by opponents has been that moving effective control of the bourse to Singapore would reduce Sydney's standing as a regional financial hub.

The Treasury has repeatedly declined to comment, saying it will not form an opinion on the deal until the FIRB has made its recommendation. The SGX launched its application with the FIRB earlier this month and the regulator has 30 days to make an initial ruling.

The Liberals, the biggest party in the opposition coalition, have said the government has yet to prove the deal would provide net benefit to Australia, therefore it had reservations.

Exchanges around the world are involved in merger talks to build scale and reduce costs amid increased competition from dark pools and other alternative electronic trading platforms.

However, some major cross-border deals, such as the Deutsche Boerse's plan to acquire NYSE Euronext , and London Stock Exchange's plan to combine with Canada's TMX Group , have run into some nationalistic opposition.

(Reporting by Balazs Koranyi; Editing by Kim Coghill)