Donegal County Council's plans to pump treated sewage from a proposed facility into Lough Foyle has been opposed by the Crown Estate, the official landlord of Queen Elizabeth.
In October 2011, the council published a compulsory purchase order, listing the pieces of land it was taking over.
These included one 0.28-hectare parcel, the foreshore, which was listed as being owned by the Minister for Agriculture. However, the land is actually the property of the Crown Estate.
The British own the seabeds of Lough Foyle and Carlingford Lough, right up to the high-water mark on the Donegal and Louth sides of the Border.
Now the Crown Estate, which charges rent to aquaculture businesses on both sides of the Border, has flexed its muscles on the Donegal sewage plant proposal.
The issue has been the subject of several high-level meetings between civil servants representing Britain and Ireland in recent years.
The county council has spent close to 5m on the scheme since 1990, despite rows and an expensive inquiry conducted by An Bord Pleanala.
Enda Craig and Bernard McGuinness, who chair the local Campaign for a Clean Estuary group, have always argued that the outflow pipe should be outside the Lough Foyle system -- 2km farther north would see the waste enter the Atlantic instead.
A spokesman for the Crown Estate said: "The exact location of the international boundary through loughs Carlingford and Foyle is an issue for determination between the UK and the Republic of Ireland.
"The Crown Estate works for the benefit of all users of the two border loughs and the protection of their environments."
"The Crown Estate has never had a planning application made to it.
"Donegal County Council would have no rights to access the foreshore and seabed without the permission of the Crown Estate," said one source.
However, sources have confirmed for the first time that the cross-border Loughs Agency recognises the Crown Estate territorial claim.
It also collects and pays rents to the body from both sides of the loughs.
A source said: "The Crown Estate is very concerned at the council's proposals and may well consider legal action to stop it in this case."