A political backlash is threatening to halt a Morrison government plan to outlaw cash payments over $10,000 in a fight over the cost for consumers and companies of forcing a shift to electronic transactions.

Ministers are facing a torrent of criticism from Liberal and Nationals MPs as well as party members who believe the crackdown on cash is a breach of the government's stated belief in the free market.

Assistant Treasurer Michael Sukkar has privately criticised the plan to his Liberal colleagues out of frustration that he inherited the proposal from the last term of Parliament. Credit:Dominic Lorrimer

The divisions set up a clash in the Senate that could veto the bill unless the government acts on demands from its own MPs to abandon the reform or send it back to department officials for extensive changes.

"In my view, there is a sense among party members and I think Liberal voters, that on this bill the party is not staying true to its Liberal values," Victorian Liberal member Steve Holland said. "I'd like to see the legislation withdrawn because in my view it is antithetical to our Liberal principles."