Proposals to turn Leicester's New College into a city academy with cash from China have run into problems. A bid to fund the scheme was initially made by the Church of England and local businessman David Samworth.
The proposals were held up when another proposal emerged from the school's former head teacher Steve White with financial backing from China.
Now the government is warning it may take over if the city council does not make a decision by Thursday.
Leicester City Council officials have insisted they were right to investigate the second bid.
New College has been struggling to raise standards and has one of the worst GCSE pass rates in the country.
Academies typically cost up to �20m, with private sponsors raising �2m and the government providing the rest.
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