The National Executive Committee (NEC) met on Friday for the second time in two weeks and discussed the matter.
Its role is to sign off a list of assembly election candidates put forward by the party in Wales.
But BBC Wales understands it failed again to approve the list.
The party's source told BBC Wales: "The NEC - on which [former Conservative MP] Neil Hamilton sits - has become factionalised and is opposing the selections put forward by the party in Wales and supported by Nigel Farage.
"There are people on the NEC defying the leader in Wales.
"It's a real stalemate between the Welsh leadership, who Nigel supports, and the NEC."
Some Welsh members have warned that selecting candidates from outside Wales - including Mr Hamilton - would be damaging.
On Friday, UKIP councillor Kevin Mahoney said he would quit the party if Mr Hamilton, Mark Reckless and Alexandra Phillips were selected.
Based on its recent electoral performance in Wales, the party stands a good chance of getting several regional AMs elected in May.
Mr Hamilton did not want to comment.
A spokesman for UKIP Wales said: "There is so much vested interest in the process as it could be UKIP's first major breakthrough into a domestic parliament and the party and its members want to be sure that the best candidates are selected for the job."
UKIP's governing body is "defying" Welsh leader Nathan Gill by refusing to approve the party's assembly election candidate selections, a senior source has said.