EU Brexit negotiator Michel Barnier arrives to answer journalists prior to a summit on Brexit in Luxembourg on Tuesday. Photo: VCG

British and European negotiators resumed intense negotiations on a draft Brexit deal Wednesday after late-night talks brought them closer but failed to confirm an elusive breakthrough.

News that Britain has softened its stance on the customs status of Northern Ireland in order to clinch an accord at this week's European summit had raised hopes that a chaotic "no-deal Brexit" could be avoided, sending the pound higher.

But a marathon late-night negotiating session in the EU's Brussels headquarters brought them to the eve of the meeting with still some distance to go to agree the wording of a treaty to govern the terms of Britain's planned October 31 departure from the bloc.

"The teams worked into the night and continue to make progress. The teams will meet again this morning," a UK official said, describing the talks as "constructive."

A senior European diplomat told AFP that the negotiators had begun to transcribe the British offer into a legal text that could eventually go before the 28 EU national leaders at their European Council summit which begins on Thursday.

But some important differences remain, the diplomat cautioned, while a European official speaking on condition of anonymity played down hopes that any text would be finalized Wednesday.

Even if a text is prepared for the leaders this week - or if, as many observers in Brussels expect, an extraordinary summit is called later in the month - any deal would have to be approved by a sceptical British parliament, which holds a special session on Saturday.

By agreeing to a form of customs boundary in the Irish Sea, Britain could allow its province of Northern Ireland to remain under EU rules, prevent a return to a hard land border with EU member Ireland and salvage a negotiated withdrawal.

But British Prime Minister Boris Johnson may struggle to convince hardline Conservative eurosceptic MPs and his allies from Northern Ireland's Democratic Unionist Party to accept this concession - less than three weeks before October 31.