Canadian-based Ivanhoe Mines (IVN.TO) and Australian miner Rio Tinto (RIO.L) had spent five years negotiating the agreement, which had been approved by the cabinet of former Prime Minister M. Enkhbold.
In the past, company officials have warned they might withdraw from the project if they do not at last receive approval to proceed with developing the site.
Oyu Tolgoi is considered one of the world’s most important mines. Forecasts issued by Ivanhoe in 2005 called for annual production of 450,000 tons of copper and 330,000 ounces of gold to be extracted annually beginning in 2010.
The agreement which had been before the Parliament called for Mongolia to retain 34 percent ownership in Oyu Tolgoi. Ivanhoe Mines Ltd. and Rio Tinto were to jointly operate the mine, which was expected to begin commercial mineral extraction in 2010.
"The prospect of a longer and more contentious revision process makes it unlikely that an investment agreement will be approved by the current Parliament," according to Eurasia Group analyst Kyle Jaros who was quoted by Reuters.
In December, Prime Minister Bayar said he would seek an international body to assist in negotiating Oyu Tolgoi on the Mongolian government's behalf.
It is believed such assistance will come from the World Bank, the European Development Bank, and other multilateral institutions.
In a statement, Ivanhoe officials said Bayar had indicated he wanted to complete the agreement before the next general election, scheduled for June.