US President Joe Biden has formally blocked the takeover of US Steel by a bigger Japanese company, saying foreign ownership could pose risks for national security.

The controversial decision comes a year after Nippon Steel first announced the $14.9bn (£12bn) deal, describing it as a lifeline for its smaller Pennsylvania-based rival.

But the transaction ran into near immediate trouble, after leaders of the United Steelworkers union loudly opposed the deal, bringing political pressure to bear in a key state during the 2024 presidential election.

Biden ultimately decided to scrap the deal despite concerns by some advisors that it could damage Washington’s relations with Tokyo, a key ally.

Nippon Steel and US Steel, which had previously threatened to sue the government if the deal did not happen, on Friday accused Biden of manipulating the review of the deal for political gain.

They said they would take “appropriate action to protect their legal rights”.

“We believe that President Biden has sacrificed the future of American steelworkers for his own political agenda,” the companies said in a statement, adding that the move sent “a chilling message to any company based in a US allied country contemplating significant investment in the United States”.

Biden’s decision raises significant questions about the path forward for US Steel, a 124-year-old company that was once a symbol of American industrial might but is now much diminished.

It had spent months looking for a buyer before announcing the tie-up with Nippon Steel, the world’s fourth largest steelmaker.

In the months since the announcement, the two companies vowed not to cut jobs and made other concessions in an effort to win support.

Just this week, they offered to fund a workforce training centre – and reportedly give the government the right to veto potential production cuts.

US Steel has also warned that it might have to close factories without the investment that would come with a new owner, concerns that had been echoed by some workers and local politicians.

Other business groups said they feared rejecting the transaction could scare off international investors at a time when protectionism in the US has been on the upswing.

But the arguments failed to convince Biden, who had come out in opposition to the deal early last year.

The transaction was also criticised by President-elect Donald Trump and the incoming vice-president, JD Vance.

The US government panel charged with reviewing the deal for national security risks failed to reach a consensus by late December, leaving the decision to Biden, who was required to act within a 15-day deadline.

In his announcement on Friday he said maintaining US ownership was important to keeping the US steel industry and it supply chains strong.

“As I have said many times, steel production – and the steel workers who produce it – are the backbone of our nation,” he said.

“That is because steel powers our country: our infrastructure, our auto industry, and our defense industrial base. Without domestic steel production and domestic steel workers, our nation is less strong and less secure.”

The United Steelworkers union called the decision the “right move for our members and our national security”, saying its opposition had been driven by concerns about the long-term viability of its industry.

“We’re grateful for President Biden’s willingness to take bold action to maintain a strong domestic steel industry and for his lifelong commitment to American workers,” President David McCall said.

Shares in US Steel fell about 5% in morning trade on Friday.

But Terry Haines of Pangaea Policy said he did not think the move necessarily marked the end of the deal.

“One of the things that’s difficult about this decision is that Japan is a very close US ally,” he said. “The government’s got frankly a big evidentiary burden in order to justify what they’re doing today – and it hurts bilateral relations with Japan, something Trump will want to avoid.”

Prof Stephen Nagy, of the Department of Politics International Studies at the International Christian University in Tokyo, also said he thought the companies might decide to try again under Trump, potentially offering different terms that would allow the new president to claim he had negotiated a better deal.

He called Biden’s decision “political”, noting that the administration from its start promised a foreign policy “for the middle class”.

“This was a direct response and continuation of the Trump MAGA agenda of Making America Great Again,” he said.

“The Biden administration couldn’t appear weak on foreign businesses, whether it’s an ally or adversary.”