The situation surrounding the Northern Ireland Protocol is "now very serious", the Prime Minister has indicated.
Boris Johnson spoke to Irish premier Micheal Martin about the post-Brexit arrangements on Tuesday.
In a Downing Street account of the call, the two leaders agreed on the vital importance of restoring the devolved institutions in Northern Ireland as soon as possible.
Read more: The Northern Ireland protocol explained
The Prime Minister was said to have made clear that the situation in respect of the protocol was now very serious.
He also said that the balance of the Belfast (Good Friday) Agreement was being undermined and the recent elections had further demonstrated that the protocol was not sustainable in its current form.
"Despite repeated efforts by the UK Government over many months to fix the protocol, including those sections related to the movement of goods and governance, the European Commission had not taken the steps necessary to help address the economic and political disruption on the ground," a Downing Street spokesman said.
"The Prime Minister reiterated that the UK Government would take action to protect peace and political stability in Northern Ireland if solutions could not be found."
An Irish Government spokesman said the Taoiseach had urged Mr Johnson "to engage in intensified EU-UK discussions to address issues relating to the implementation of the protocol".
The spokesman added: "He set out clearly his serious concerns at any unilateral action at this time, which would be destabilising in Northern Ireland and erode trust.
"The Taoiseach pointed out that the EU has engaged constructively in the protocol discussions, addressing the issue of medicines, and last October putting forward a substantial package of flexibilities and mitigations, including on customs and SPS arrangements.
"The Taoiseach stressed to the Prime Minister that the way forward should be through continued engagement with a view to arriving at agreed EU-UK solutions that address the practical issues arising around implementation of the protocol."
The men also discussed the need to restore powersharing in Northern Ireland.
The spokesman said both leaders agreed on the importance of "having a strong functioning executive in place to deliver for the people of Northern Ireland".
He added: "The Taoiseach emphasised the importance of the two governments working together in support of the full operation of the institutions of the Good Friday Agreement."
Mr Johnson also had calls with DUP leader Sir Jeffrey Donaldson who reiterated his position that there must be action on the protocol before his party will enter government.
While Sinn Fein's Stormont leader Michelle O'Neill stressed an Executive must be formed now, adding: "The public here can't be a pawn in the British Government's game of chicken with the EU."
Earlier, Foreign Secretary Liz Truss was reportedly set to move to discard large portions of the Northern Ireland Protocol after giving up on Brexit negotiations with the EU.
The Times reported that officials working for Ms Truss have drawn up draft legislation to unilaterally remove the need for checks on all goods being sent from Britain for use in Northern Ireland.
The law would also ensure businesses in Northern Ireland are able to disregard EU rules and regulations and remove the power of the European Court of Justice to rule on issues relating to the region, the paper said.
Importantly, the Bill would override the protocol agreed by Mr Johnson in 2019 and mean the UK had breached its obligations under the Brexit agreement.
The Times said Ms Truss is understood to have concluded talks with the EU and has been told the proposed Bill could lead to a trade war with the bloc.
It comes after The Sunday Telegraph said Ms Truss faces Cabinet opposition, particularly from Chancellor Rishi Sunak and Communities Secretary Michael Gove, to her plans to rip up the protocol.
The PA news agency was told that Ms Truss is poised to take further action in the coming weeks if negotiations with the EU continue to stall.
But it was argued the protocol will not be completely overridden, with measures instead being considered to ease the issues on the ground in Northern Ireland.
No decisions have been made, it was stressed, but these could include action to address the difference between VAT, rules and courts within the UK on either side of the Irish Sea.
Sir Jeffrey, meanwhile, has said that he will not lead the DUP back into powersharing until the issue is resolved, suggesting the prospects of any quick return of the devolved powersharing Executive at Stormont are diminishing.
MLAs returned to Parliament Buildings on Monday and party leaders were also holding separate meetings with Northern Ireland Secretary Brandon Lewis.
Ms O'Neill said that the DUP and British Government must accept and respect the democratic result of the Northern Ireland Assembly elections.
The Prime Minister has said he does not plan to be personally involved in the Northern Ireland talks, while Downing Street played down the reported Cabinet rift over the protocol.
Asked about the Government's position on the protocol and whether there are divisions within Cabinet over proposals to unilaterally scrap it, Mr Johnson's official spokesman said: "I wouldn't say that at all.
"I think our preference has always been for a negotiated solution to fix the protocol and we have been clear that we will take further steps if solutions can't be found.
"No decisions have yet been taken on the way forward. The Deputy Prime Minister made clear the situation, it's very serious."
He insisted the proposals put forward by the European Commission "don't go anywhere near far enough to make the protocol sustainable", adding: "We believe (they) would take us backwards from where we are today. So no decisions have been taken. But we do reserve the right to take action."
That line echoed earlier comments on Monday by Tory MP Michelle Donelan, in which the universities minister said scrapping the protocol was "on the table as one of the options" in the wake of Sinn Fein's success in the Stormont elections.
Mr Lewis last week intimated a move against the Northern Ireland Protocol was unlikely to feature in the Queen's Speech on Tuesday.
Read more: Sinn Féin urges DUP to 'accept and respect' democratic result of election
Read more: Jeffrey Donaldson confirms DUP won't nominate ministers to NI Executive
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