Abd Allah Ahmad Badawi's comments came after tycoon Syed Mokhtar Albukhary made a bid for the project.
His GIIG Capital signed an agreement to buy a 60% stake in dam operator Sarawak Hidro for $249 million.
The government took over the controversial 2400 megawatt Bakun scheme on Borneo island and revived it in 2001 after it was shelved when the main operator fell in debt.
The tycoon's move is aimed at ensuring power supply to a $2 billion aluminum smelter to be developed by GIIG in Sarawak by 2007. GIIG is jointly owned by Syed Mokhtar and Dubai-based Muhammad Ali Alabbar.
But sources told the Edge weekly newspaper that the agreement had lapsed because GIIG failed to fulfill certain conditions by a 15 October deadline.
"We still want to go ahead with the Bakun project. We don't want to abandon it. The approach we will take has yet to be decided as our officers are still looking at various aspects of the project"
Abd Allah Ahmad Badawi,
Malaysian prime minister
They added the government was having "second thoughts" about selling Sarawak Hidro.
Badawi, who is also finance minister, confirmed the government was "not sure yet" whether it would keep control of the mammoth project.
"We still want to go ahead with the Bakun project. We don't want to abandon it. The approach we will take has yet to be decided as our officers are still looking at various aspects of the project," he said on Tuesday.
On plans to sell Sarawak Hidro, he said there had been "no decision yet" and he was waiting for more detailed reports.
Sale on track
"The project must go on but there are some details with regards to the implementation of the project that I'd like to see and to know more about."
Tuesday's Business Times quoted GIIG co-owner Muhammad Ali as saying the company had satisfied all the conditions required and the sale of Sarawak Hidro was on track.
"Everything is moving as scheduled. I am happy with the progress," he told the daily.
But the Edge said it learned other companies had submitted new project proposals to the government.
"Everything is moving as scheduled. I am happy with the progress"
These included a joint-venture between Malaysian Resources Corp and Sweden's Asea Brown Boveri, which proposed reviving plans to build 1600 megawatt submarine cables to transfer power to peninsular Malaysia.
Malaysia dropped plans for the world's longest undersea cable network to cut costs after it revived the project.
The total project cost is unclear at this stage, with reports citing more than $2 billion at the time of its revival, but The Edge pegged it at only about $1billion.
The dam, which involves flooding an area the size of Singapore, has attracted fierce criticism for its likely effect on the environment and 10,000 locals who have already been moved out of their homes.
Environmentalists say the dam's capacity far exceeds future power needs in Sarawak.