Australia on Thursday threatened to walk away from a blockbuster free trade deal with the European Union unless its producers were allowed to use labels such as "feta" and "prosciutto".

Negotiations started in 2018 covering everything from chemicals to cosmetics, but have repeatedly been bogged down in the final stages over what Australia calls its wine, cheese and cured meats.

Notoriously protective European producers argue that, for example, Roquefort cheese can only come from a specific region in France, and gouda must be made in the Netherlands.

Australia has refused to back down despite the huge economic benefits promised by the agreement, with Agriculture Minister Murray Watt describing the naming rights as an "emotional issue".

"This isn't just an emotional issue for European producers, it's an emotional issue for Australian producers," he told national broadcaster ABC.

"We've had a lot of migration post world war two from Europe to Australia. That has seen our producers bring their own products from their home countries and make them here."

Watt said if Australia "can't get a good deal, we're better off not doing one".

The EU has given Australia a list of more than 400 product names it is seeking to protect, which includes feta cheese, prosciutto di Parma ham, and Irish cream spirits.

It's a typical demand from one of the world's largest trading blocs, and one they are extremely unlikely to relinquish for Australia. It's unclear whether Australia would drop its objections in exchange for greater concessions elsewhere.

Australia hopes the trade deal will lead to a reduction in the hefty tariffs currently slapped on many of its agricultural exports. In exchange, the European Union would be able to reduce its reliance on trading partnerships with countries such as Russia.

Watt said that, despite the impasse, both sides had "agreed to continue talking". (AFP)