Human Head reportedly stopped work on Prey 2 last November due to a contract dispute with Bethesda parent ZeniMax Media.
Until yesterday, when Bethesda delayed the game beyond 2012 citing quality concerns, many feared the shooter sequel had been cancelled.
According to an anonymous Shacknews source, Human Head downed tools as it looked to negotiate a better deal with Bethesda and Zenimax.
Talks are said to have broken down in January when ZeniMax stopped responding to the developer. They later resumed but have apparently hit another wall.
During this self-imposed work embargo, Human Head is said to have laid off a number of development staff, though it is thought they might be rehired should the project pick up again.
Bethesda said yesterday that the "delay is due to the fact that game development has not progressed satisfactorily this past year, and the game does not currently meet our quality standards".
It's unclear whether Human Head will resume work on the game, if Bethesda will draft in another developer, or if the sequel will even see the light of day.
Human Head may have other projects on the go. Earlier this week it seemingly began teasing a sequel to Rune.