Etihad Airways has toughened its stance on conditions for investing in Italy's struggling Alitalia airline but talks are continuing, according to Arabian Business.

"The position of the Arab group has hardened, some problems have been more markedly underlined than before," a source close to the matter said.

But a government source said developments could be overcome. "The government is counting on finding a solution," the source said.

Italian daily Il Messaggero reported on Thursday that a deal between the two airlines was off since the conditions were not in place.

An Etihad spokesperson declined to comment. Alitalia also declined to comment.

"It's part of negotiations... It in no way means the deal is over. They have just put tough conditions on the deal," a United Arab Emirates-based source said.