Brexit has undermined the Good Friday agreement that brought peace to Northern Ireland and has strained relations between Britain and Ireland, the Irish prime minister has said.

In an interview with RTÉ on Saturday morning, Leo Varadkar said Ireland was about to enter a difficult period because of the impact Brexit would have on the economy.

He indicated that a Brexit deal would give renewed impetus to parties in Northern Ireland to reach an agreement to restore devolved government in the region, 22 months after the Stormont assembly collapsed.

“Brexit has undermined the Good Friday agreement and is fraying the relationship between Britain and Ireland,” he told the Marian Finucane show. “Anything that pulls the communities apart in Northern Ireland undermines the Good Friday agreement, and anything that pulls Britain and Ireland apart undermines that relationship.”

He said if there was some clarity in the next couple of weeks or months there would be “a window of opportunity to get the assembly going again”.

He went on to reiterate his pledge that there would be no return to a hard border in Ireland whatever the outcome of Brexit negotiations.

On Friday the British and Irish governments signalled that there could be a breakthrough on the Irish border impasse within weeks, which would pave the way to a Brexit deal between the UK and the EU.

Simon Coveney, Ireland’s deputy prime minister, and David Lidington, the UK Cabinet Office minister, said there had been progress in negotiations that could resolve the deadlock and produce a deal this month.

At the same time, the Democratic Unionist party leader, Arlene Foster, indicated a that deal was in the offing after meeting the Brexit secretary, Dominic Raab, in Belfast.

“Goodness, we have been here on a number of occasions and I think we are close to a deal that will work for Northern Ireland. That is what we want,” said Foster, whose party less than a month ago threatened to withdraw support for the Conservative government if the Brexit deal involved a border in the Irish Sea.

Hopes of a breakthrough have risen in the last week after it emerged that the EU had proposed a new UK-wide customs arrangement in addition to a backstop or insurance policy in relation to the Irish border.

Under the proposal, the UK would operate a “bare bones” customs arrangement, with the EU applying a common external tariff on imports from outside the EU, as is currently the case.