Britain cannot afford to be excluded from core development of the EU’s Galileo satellite navigation system and will have to develop its own expensive “sovereign system” if the 27-country bloc does not change its mind, according to Theresa May.

The prime minister sought to up the ante by pledging to spend £92m on the initial scoping work for an alternative, unless Brussels allows the UK to be involved in security discussions and contract negotiations during the system’s creation.

May said that the UK wants to remain involved in Galileo after Brexit, but said it was not acceptable to “be an ‘end user’, shut out from security discussions and contracts, and without critical information about the systems security”.

Galileo is a European satellite navigation system, developed as a rival to the US GPS system. It is due to be launched in 2020 with civilian and military variants, and requires 24 satellites in orbit to be operational.

The UK has already contributed £1.2bn to the creation of Galileo but the EU has begun to exclude Britain from the security aspects of its development, triggering a row. Britain had intended its military to use the technology in tandem with GPS.

Developing a fully fledged British Global Navigation Satellite System would almost certainly cost several billion pounds, but May is hoping her brinkmanship will persuade the EU to relent.

She said: “So unless we receive assurance that we can collaborate on a close basis in the future – like the close security partners we aspire to be – we are clear that we will withdraw UK support for Galileo and pursue our own sovereign satellite system. And this is not an idle threat to achieve our negotiating objectives.”

May’s threats were accompanied by a government statement that said sustained disruption to satellite navigation would cost the UK economy £1bn a day because GPS is so widely used in cars and other transportation.

Officials said that notional cost to the economy would only apply if all satellite navigations systems were to fail or made unavailable in the UK – an unlikely scenario used as one of several justifications for commencing the scoping study.

The money will come from £3bn set aside by the chancellor, Philip Hammond, to prepare for Brexit contingencies and will fund an 18-month feasibility study to develop a system that would be compatible with GPS.

“This will ensure the UK’s safety post-Brexit, using the expertise of our world-leading space and security sectors to do so,” May said. “Today’s investment marks an exciting time for the sector, and for the UK, and I can’t wait to see what we can achieve.”

Ministers have previously suggested that the UK will try to claw back the money it has already contributed to Galileo, although there was no reference to any legal threats in the latest announcement – a clear indication that Britain would prefer to resolve the dispute amicably.