National Lottery operator Camelot today described a decision to block its plans to offer extra commercial services as "flawed".
The company wanted to raise additional money through the use of National Lottery terminals for mobile phone top-ups and electronic bill payments.
But the National Lottery Commission, which regulates the lottery, issued a provisional decision refusing the proposals on the grounds it could breach European or competition laws.
"The NLC is minded to refuse to grant consent to Camelot's application to undertake ancillary services on the basis of the EU/competition law risks it raises," the NLC said. "It is a provisional decision rather than a final decision in order to give those who are interested in the commission's decision a final opportunity as a matter of fairness to address the points made."
A Camelot spokesman said: "We firmly believe that the National Lottery Commission's preliminary position is flawed and remain absolutely confident that our proposals do not breach either European or competition law.
"We are disappointed that the NLC has failed to reach a definitive decision - instead choosing to further extend the process, which will delay the generation of additional funds for good causes, and benefits for retailers and consumers.
"We remain convinced that our detailed and carefully considered plans, based on thorough and robust legal advice, should allow us to offer commercial services through National Lottery retailers.
"We are carefully considering all of our options."
Interested parties have until September 3 to make representations to the NLC on its provisional decision.
Dominic Taylor, chief executive of PayPoint, said: "This is a victory for local shops, including sub-post offices, whose earnings and footfall would be undermined by this proposal.
"Today's decision should protect vulnerable people from the increased temptation to gamble.
"It would be entirely wrong if Camelot were to be allowed to exploit its monopoly position, and we are pleased that the National Lottery Commission has accepted the compelling arguments that the proposal would have distorted competition in the bill payments sector."
The commissioners pointed out Camelot's lottery business generates around £1.6 billion a year for good causes while the proposed additional services were estimated to raise in excess of £5 million a year.
In its decision, the NLC said: "The risk that the commission's EU/competition law advisers have identified of a breach of EU/competition law... through a decision to grant consent for Camelot to undertake ancillary activities, is a matter that commissioners have decided weighs heavily in the balance of their decision.
"Furthermore, the commissioners consider that, in the context of the returns for good causes generated by the National Lottery, the returns projected for good causes from Camelot undertaking ancillary activities are relatively small, particularly in light of the timescale based on when the ancillary activities would be likely to be implemented in practice, and the costs and management time that would be spent on litigation in respect of any decision to grant consent."