As Wales plot a record fourth grand slam in the Six Nations era, their domestic game has descended into civil war after a merger between the Scarlets and the Ospreys was rejected by the latter, who saw it as a takeover that would mean them ceasing to exist.

The Ospreys chairman, Mike James, made a dramatic resignation after the start of a meeting of the Professional Rugby Board, a body made up of representatives from the Welsh Rugby Union, the four regions and an independent director, that had been convened to discuss the proposal as part of the governing body’s Project Reset, a plan to reform all aspects of the game in Wales and make it more cost effective.

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James asked to speak to the two WRU representatives, Martyn Phillips and Gareth Davies, on their own. He told them what he thought of the proposed merger and that he was resigning from the Ospreys in disgust at the way he felt the union had manoeuvred discussions over the project, which started more than a year ago, so that his region would be sacrificed for a new one to be created in north Wales.

He then walked out but having attended the meeting it meant the board could not reach a decision because the vote had to be unanimous. His footsteps could still be heard walking away from the room when the Ospreys released a statement from James in which he described the process as “ill-judged and cavalier. Project Reset has become Project Inept. The way in which this has been handled has been nothing short of chaotic. I cannot and will not be a party to this level of catastrophic mismanagement.”

Quick guide Welsh rugby's regional crisis Show Hide What is happening in Welsh rugby? Leaked plans for an overhaul of the pro game dubbed “Project Reset” have indicated the Ospreys and the Scarlets will merge. The plan would keep four regions, with a new region in north Wales. The regions would be ranked: a super region in west Wales from the merger, the Blues, and in effect two development regions at the Dragons and in north Wales. What are the aims of Project Reset? It’s an unofficial name given to the discussions of the Professional Rugby Board, which runs the professional game, to reboot the game in Wales from top to bottom for the 2020-21 season. The PRB has regional representatives but the overall project has been led by the Welsh Rugby Union. It covers not just structure, but pay and contracts. Why is everyone so upset about it? It merges two established regions. The players are not involved in the PRB and many in the Wales team play for the Ospreys and are out of contract in the summer. They are also not happy with the pay banding. The Ospreys believe the Scarlets are in effect taking them over. What still has to be resolved? Lots. There are no indications over where a merged team would play, in what kit, or the futures of the players and coaches. The PRB could not even vote for the plan to go ahead because the Ospreys chairman, Mike James, resigned before the meeting, meaning not everyone was represented. What is the north Wales setup now? The WRU have invested in a stadium in Colwyn Bay and, since 2008, a development team have been based there. RGC 1404, coached by the former Wales wing Mark Jones, are fourth in the Premiership.

The board later issued a statement denying James’s allegations, claiming that a heads of terms for merger had been agreed by the Scarlets and the Ospreys last Friday. “The statements issued today by the Ospreys do not reconcile with the minuted meetings, actions and documented agreements that have taken place to date,” it ran. “The PRB is united in its pursuit of what is best for professional rugby in Wales and will not be deflected.”

The events meant the PRB had nothing to put before the board of the Welsh Rugby Union. The intention was to make the change from next season and the other three regions, if only out of self-interest, were all in favour. The Scarlets stood to keep their name, ground and training facility, gain the Ospreys’ best players and an extra £2.5m a year as Wales’s “super region”, taking its annual funding to nearly £9m.

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Cardiff Blues would have had slightly less, while the Dragons, who are owned by the WRU, would have been funded as a development side, as would the north Wales region. The Ospreys are planning for next season, although with Project Reset having reached an impasse, the region has to open talks with 24 players who are out of contract in the summer, including the Wales captain, Alun Wyn Jones.

Jones was due to talk at Wales’s team announcement on Tuesday, along with the flanker Justin Tipuric and the hooker Ken Owens, the chairman of the Welsh Rugby Players’ Association. James’s statement prompted the two Ospreys to keep their thoughts to themselves, leaving Owens to say the culmination of events had come as a shock to the Wales squad but would not act as a distraction before Saturday’s game against Scotland at Murrayfield.

“It’s a bit unfair to be pointing the finger at one entity when I thought the big thing was that we were all in it together,” Owens said. “I hope they can get a decision sorted but Mike James has jumped ship and as players we’re going to be left in limbo for who knows how long. It is hugely frustrating this has dragged out.”

The Ospreys are unhappy at selective leaks in the last week, which they feel were designed to make them fit the role of fall guys. One suggested they were in financial trouble, which was denied, and another that the merger with the Scarlets would see Pro14 matches played in Llanelli and European games at the Liberty Stadium.

The Ospreys are in the first year of a six-year deal with Swansea City FC to play at the stadium at a cost of £1m a year. Given the financial drive of Project Reset, it would be an expensive luxury. “This proposal would mean the end of us,” said an Ospreys official. “We would be consumed by the Scarlets and all we have worked for would turn to nothing. We took a full part in this process, which meant looking closely at every proposal that was tabled, including mergers, but clearly the intention all along was to shaft us.”