Northern Ireland has the right to leave the United Kingdom and join the European Union as part of the Republic after Brexit, ministers have concluded.
According to The Times, ministers have decided that Northern Ireland would not have to reapply for EU membership as a new country if it voted for reunification.
The British government’s position was revealed in a letter from Brexit secretary David Davis to SDLP MP Mark Durkan.
The development comes as civil servants prepare to take control of Northern Ireland’s budget after powersharing talks between political parties in the province collapsed.
There are also fears that Northern Ireland’s economy will take a particularly hard hit from Brexit.
James Brokenshire, the Northern Ireland secretary, said that Sinn Fein and the Democratic Unionist Party would have a “short window” to resolve their differences and that there would be “consequences” unless a new powersharing government was swiftly formed.
He said: “We are rapidly approaching the point where Northern Ireland will not have an agreed budget. This is not sustainable.”
Ministers and government lawyers are understood to have concluded that the situation in Northern Ireland is akin to that in Germany before reunification.
When East Germany joined together with West Germany in 1990, it automatically joined the European Community - the forerunner to the EU.
This would mean Northern Ireland would have to adopt the euro but, unlike Scotland, would not have to apply for membership in its own right.
Under the terms of the Good Friday agreement of 1998, the British government is legally obliged to offer Irish voters a reunification poll should there be clear evidence of public support for the plan.
In the referendum last June, 56 per cent of voters in Northern Ireland voted to remain within the EU.
Mr Davis’s letter says that the British government’s position remains to “support Northern Ireland’s current constitutional status”.
It states: “We are committed to the principle of consent enshrined in the Belfast agreement which makes clear that Northern Ireland’s constitutional position is a matter for the people of Northern Ireland to determine.”