The UK may never claw back £1.2bn of investment in Galileo, the EU’s satellite navigation system, as Theresa May officially pulled the plug on UK defence and security participation in the system after Brexit.

Galileo, developed as a rival to the US GPS system, is due to be launched in 2020 with civilian and military variants. The UK’s continued involvement, given the extent of British funding of the system, has been at the centre of some of the bitterest rows of the Brexit negotiations.

Britain has already contributed £1.2bn to the creation of Galileo, which has an overall cost of £9bn, but the EU has begun to exclude Britain from the security aspects of its development.

British armed forces were due to have access to Galileo’s encrypted system when it is fully operational in 2026. However, government and security agencies have concluded it would not be in the UK’s security interests to use the system’s secure elements if it had not been fully involved in their development.

The text of the political declaration which May secured with Brussels last week on the future relationship gave only a terse one-line statement on future cooperation. “The parties should consider appropriate arrangements for cooperation on space,” it said.

On Friday, May officially announced that the UK would be pulling out of the system and made no mention of any attempt to recoup the UK’s investment.

“The commission decided that we would be barred from having full aspects of the Galileo programme and so it is right for us to look for alternatives because it would be wrong to put our [armed] services relying on a system on which they couldn’t be sure of,” May told reporters in Buenos Aires while attending the G20 summit. “That would not be in our national interest.”

She added: “So what is in our national interest is to say no, you haven’t allowed us full access, so we will develop an alternative, we will look at alternative options, we are doing that work but we will work with other international partners to do so as well.”

Whitehall sources said the issue of the £1.2bn was yet to be finally resolved because the UK could still choose to be involved in commercial aspects of the system.

“We will be discussing our past contributions to the financing of Galileo in the upcoming talks,” a senior UK official said.

Downing Street said the UK would explore options to build its own Global Navigation Satellite system to help guide military drones, run energy networks and other commercial uses. May said the UK had “world-class engineers and steadfast allies around the world. We are not short of options.”

Gavin Williamson, the defence secretary, said the development of a new system would be an opportunity to draw on British skills and expertise in satellite technology. “Space poses a new and increasingly dangerous front for warfare and it is crucial to push ahead with plans for our own world-class, independent satellite system,” he said.

Signs that the UK had accepted it would be forced out of the system were apparent in August when the UK Space Agency announced a £92m feasibility study of a national alternative to the Galileo programme. Number 10 said a series of key contracts were now being tendered.

The government now plans for possible collaboration on a new system with other countries such as those in the FiveEyes intelligence alliance and hopes to use some British overseas territories and Crown dependencies for a global network of locations necessary for infrastructure and worldwide coverage.

The development of the system may be raised in several bilateral meetings May will hold with world leaders on Saturday at the G20 summit in Argentina. The prime minister will meet her Canadian and Australian counterparts, Justin Trudeau and Scott Morrison respectively. Both countries are members of the FiveEyes alliance.

• This article was corrected on 1 December 2018. Justin Trudeau is the prime minister of Canada, not the president.