Foxtel is threatening to sever its two-decade relationship with rugby union, with the pay TV giant withdrawing its bid for key broadcast rights that could deal the struggling code another blow.

Senior Foxtel sources confirmed it had withdrawn its offer for the five-year rights to the Super Rugby competition, the National Rugby Championships and Wallabies Tests. However, they said there was still a chance the pay TV company and Rugby Australia could reach a deal.

The Herald understands Optus has expressed interest in the broadcast rights, potentially looking to expand its digital live sport offering with a deal worth in the ballpark of $30 million a year.

News Corp-controlled Foxtel has played hardball in sports rights negotiations before. It threatened to walk away from cricket rights in 2018, only to eventually sign them.

In a statement, Rugby Australia chief executive Raelene Castle said RA was in "general discussions" with the broader market, but "no formal negotiations" had yet taken place for the deal to commence in 2021.