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The authority has been asked by the Marches Local Enterprise Partnership (LEP) to provide updated evidence by the end of October that the road is still necessary and represents good value for money.
The LEP’s board will meet in November to consider the new information before deciding whether to claw back the grant it awarded the scheme in 2015.
It has also said it expects the planning application for the North West Relief Road to have been decided in that time.
The council would not say what would happen to the project if the LEP grant was to be withdrawn.
It did however stress that the 1.14km Oxon Link Road, for which the LEP grant is specifically allocated, was less controversial than the rest of the proposed route and could be progressed separately if necessary.
Councillor Dan Morris, cabinet member for highways, said: “Although they are being considered together as part of the planning process, the proposed Oxon Link Road, which will link Churncote Island to Holyhead Road and the proposed North West Relief Road, which will link Holyhead Road to Ellesmere Road, are in effect two schemes.
“Subsequently, the Oxon Link Road is not affected by the detailed environmental investigations and assessments that the North West Relief Road is and we could potentially progress this as a standalone scheme.
“It is this part of the scheme that the Marches Local Enterprise Partnership has allocated funding to.”
The planning application was lodged two and a half years ago and has faced setback after setback. It was at last due to go before the council’s northern planning committee last month, but was delayed again after the Environment Agency said it still had concerns.
However Councillor Morris said he was confident that all outstanding matters would be dealt with in time for a planning decision to be made before the LEP’s November board meeting.
He said: “Delivering large scale complex infrastructure schemes involves a great deal of technical and environmental assessment and this takes time.
“We feel it right that we move this scheme forward when we have complete assurance over how that can be done successfully.
“Although yet to be determined, we are very positive about the whole scheme and the development it will unlock, that will have a very positive impact on the wider area.”
Councillor Morris added that the council would “continue to work with the LEP to provide reassurances in respect of this important project”.
The council did not answer further questions about what it would do if the LEP does vote to withdraw the funds.
Delivering the LEP’s ultimatum earlier this week, board chair Sonia Roberts MBE said: “We feel we have been very patient with the council having first awarded this funding eight and half years ago.
“The Marches LEP has a mandate from government to ensure the best use of public money and is accountable for the appropriate management and oversight of all funding we allocate.
“The board has agreed that in this case the council must provide the evidence that this funding still represents an appropriate use of public money and must also make progress on planning.”
The £4.2m grant came from the first round of the Government’s Local Growth Fund, from which the LEP secured £75.3m in 2014.
At a board meeting earlier this month members said they felt a “responsibility” to take back the money and redistribute it to more deliverable projects.
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