The decree, which was due to be approved in parliament by the end of February, curbs compensation for early termination of a contract when the concession holder is in breach of its obligations, threatening Italy's biggest infrastructure group, Atlantia.

The lobby group AISCAT, which includes Atlantia's motorway unit Autostrade per l'Italia (ASPI), appealed the measure, and its decision to drop its case may signal an end to the dispute is near.

AISCAT said in a statement that it was withdrawing its appeal because it was "confident in a positive solution to the complex problem."

The co-ruling 5-Star Movement has been threatening to revoke Atlantia's contract ever since a bridge operated by ASPI collapsed in Genoa in 2018, killing 43 people, but it has so far not found the necessary backing from its coalition partners.

Investigators have pointed to evidence of poor maintenance and mismanagement of the bridge. Atlantia, controlled by the prominent Benetton family, has denied any wrongdoing and warned the government it would challenge any revocation of the concession in the courts.

Prime Minister Giuseppe Conte has been trying to broker an agreement on the issue among his coalition of the anti-establishment 5-Star, the centre-left Democratic Party (PD) and the small centrist Italia Viva party.

The premier is expected to meet coalition figures do discuss the matter later this week, a government source said.

While 5-Star has insisted Atlantia must be stripped of its lucrative concession, the PD has been more cautious, fearing that revoking the licence could force the government to pay billions of euros in compensation.

Italia Viva, led by former Prime Minister Matteo Renzi, opposes revocation, saying it would scare away foreign investors.

A source familiar with the matter told Reuters AISCAT had withdrawn its appeal because it believed "the political climate now looks more favourable to finding a solution."

5-Star is by far the largest party in parliament, but last month's elections in the Emilia Romagna region in northern Italy produced a victory for the PD candidate and big losses for 5-Star.

This may have affected the balance of power within the coalition, and it has boosted Atlantia's share price as investors bet that revocation was becoming less likely.

By Giuseppe Fonte and Stefano Bernabei