A key part of a BP fundraising programme to help pay compensation and liabilities connected to the Gulf of Mexico oil spill has collapsed in an acrimonious dispute with a business owned by a Chinese state oil group.

The failure of a $7.1bn (£4bn) deal to sell its 60% holding in Pan American Energy and a decision not to sell it on elsewhere indicates that BP has diluted plans announced less than a fortnight ago to raise $45bn by selling off businesses.

BP will have to pay back $3.5bn it had taken on deposit for the now-failed sale of its 60% stake in Pan American Energy to an Argentinian buyer, Bridas, part-controlled by China National Offshore Oil Corporation (CNOOC).

The proposed sale was one of the largest single disposals that BP had drawn up under its plans to bolster its finances to ensure it could meet all liabilities with regard to the Macondo blowout, in which 11 oil workers died and swaths of coastline were damaged by oil pollution.

The setback has been made worse by the fact that Bridas put out a statement at the weekend that said the decision to pull out "was prompted by legal issues, by the manner in which BP has behaved during the transaction and the signature".

But it also comes amid unease about BP's relatively new chief executive, Bob Dudley, who failed to pull off a major share-swap and Arctic exploration deal with Rosneft of Russia despite earlier announcing it with great fanfare.

The British oil company, which faces potential criminal charges over the Gulf spill, is also under pressure after court documents released in New York and published in the Observer on Sunday showed it had done a previous deal with Russian partners despite them being characterised in BP's own internal documents as "crooks and thugs".

BP confirmed the end of the Pan American sales agreement although it blamed the collapse on the failure of Bridas to obtain the green light from the necessary authorities.

"The closing of this transaction had been delayed because the Argentine anti-trust and Chinese regulatory approvals required to satisfy the conditions precedent to closing of the transaction had not been obtained by Bridas Corporation.

"Under the terms of the agreement, Bridas had exclusive responsibility for obtaining these approvals," said BP in a statement. "As a result of Bridas Corporation's termination of the agreement, BP will now repay the deposit for the transaction of $3.5bn received at the end of 2010. This deposit had been held by BP as short-term debt and will be repaid by 14 November. This repayment will not affect BP's level of gearing, which stood at 19% at the end of September."

The deal to dispose of BP's holding in Pan American – Argentina's second-largest oil producer – to Bridas was part of a wider asset sale programme to pay costs associated with the Deepwater Explorer accident in the spring of last year. BP said last month at its third quarter financial results that it raised $26bn from divestments but had increased its sales target to $45bn. Bolstering its finances was vital for plans to increase its dividend, which may now be in doubt. That $26bn included the $7.1bn from the sale of Argentinian assets so BP has now cut this by more than a quarter but may now hang on to the Pan American stake rather than find another buyer.

"BP is happy to return to long-term ownership of these valuable assets, given the considerableimprovement in its financial strength, as well as the improved external trading environment," it said.

The group's divestment programme was focused on the sale of non-strategic assets, it added, and denied it was driven by a requirement to raise cash. "As such, BP does not currently plan to divest additional assets to offset proceeds which would have been received from the PAE transaction," it explained, suggesting that the plan to raise its sales target to $45bn has been shelved.

Yang Hua, CNOOC chief, made a short statement on the failed deal, explaining that "certain conditions precedent to the completion of the deal were not obtained as expected, and Bridas chose to terminate the transaction."