A huge submarine deal faces the axe if China is unable to fit the engines specified in the purchase agreement, warned Prime Minister Prayut Chan-o-cha on Monday.

He was answering reporters' questions following reports that a German company had refused to supply diesel engines to China to be fitted into the submarine being built for the Royal Thai Navy (RTN).

Gen Prayut, also defence minister, said he had instructed the navy to do its best to get the deal, but if China could not fulfil the agreement, the contract would have to be scrapped.

"What do we do with a submarine with no engines? Why should we purchase it? If the agreement can't be fulfilled, we have to figure out what to do. Isn't that how we solve a problem?" he replied.

When asked if the government can terminate the contract, he said the matter will be considered by authorities concerned.

He insisted that any cancellation will not affect Thai-Chinese relations and both sides have been working closely to resolve the issue.

Under the terms of the deal, the submarine's engines were to be supplied by Germany's MTU, but the company were barred from making the sale due to an embargo as they are designated a military/defence item.

It is reported that China Shipbuilding & Offshore International Co (CSOC) has asked the navy to change the contract to replace the German engines with Chinese ones such as the MWM 620 which are of the same standard, but the navy is standing by the original contract.

Thailand formally signed an agreement to buy the S26T Yuan Class submarine from China in May 2017 under a budget of 13.5-billion-baht.

The payment had been agreed to be spread over a seven-year period with the first instalment of 700 million baht made in 2017.

The navy, after further talks with Chinese military, agreed to a three-submarine package worth a total combined cost of 36 billion baht to be paid in 11 annual instalments

However, procurement of the two additional submarines, valued at 22.5 billion baht, was delayed for four years and is in limbo due to financial constraints following the pandemic.