Germany and France are leading a group of states who want to suspend EU laws which entitle passengers to demand their money back.
Under their blueprint airlines would be allowed to issue vouchers instead, which could be redeemed for cash if they were unused after a long period.
Berlin is pushing for the scheme to be in force until 2022 to help save carriers from bankruptcy.
Britain would have to apply any changes until the end of this year because we are bound to follow EU law during the transition.
Diplomats said 16 countries openly support the plan and another four are privately in favour – giving the group a massive majority within bloc.
Spain and Ireland, which are home to British Airways owner IAG and Ryanair respectively, are among those backing it.
But Britain is opposed to the move, with a government spokesman insisting: “The UK champions consumer rights.
“While we recognise the unprecedented strain the sector is under, the UK’s position is clear – if a customer asks for a refund, that refund needs to be paid.”
No10 has an unlikely ally in the EU Commission, which also opposes the call from Member States but is now under huge pressure to cave.
Its vice-president Vera Jourova insisted the bloc must uphold consumer rights and vouchers should remain voluntary.
Consumer group Which? Travel has called on the Government to step in and give struggling airlines cash support so they can carry on issuing refunds.
