Total is laying plans to extinguish a flare on its Elgin North Sea gas platform that is leaking explosive clouds of gas.
The flare, lit as part of evacuation proceedings to relieve pressure in the abandoned rig, cannot be turned off remotely and remains at risk of igniting the explosive plumes pumping out of the platform, the department said.
But it added aerial surveillance suggests the flame has reduced in size, offering hope for a safe resolution to the crisis.
French oil firm Total is considering options including a helicopter water drop, fire-fighting vessels and spraying nitrogen to put out the flare.
The authorities have praised Total's handling of the leak, one of the North Sea's biggest in decades, calling it "effective" and conditions on the rig "stable" as hydrocarbons continue to spew into the atmosphere.
Total has dismissed the risk of a blast at the platform and has two fire-fighting ships ready to act outside a two mile-exclusion zone set up to protect marine traffic.
Experts warn Elgin could become "an explosion waiting to happen."
The leak started on Sunday and forced the evacuation of all 238 workers from the platform, which sits in waters less than 100 metres deep and 240 km off the coast of Aberdeen.
Total as well as UK authorities have described the expected environmental impact from the plume of gas and a spreading sheen of light oil on the water as "minimal", although environmental experts said much of the gas "cocktail" would be either flammable or poisonous at close quarters.
Memories are still raw in the North Sea industry of the Piper Alpha platform fire 24 years ago, when 167 people were killed in the world's deadliest offshore oil disaster.
The UK energy department said that while alight the flare remained a risk despite prevailing winds blowing the gas cloud away from the flame for the foreseeable future.
"Total has assured the government the platform is designed so the flare is located in a position where the prevailing wind blows the gas release away from it," it said.
The team of international experts advising Total on how to plug the leak - which has now entered its sixth day - has not made its final recommendation, it said.
The options on the table include drilling a relief well, the safest but also slow and costly, and pumping heavy mud into the stricken well from the platform itself, faster but far more dangerous.
Relief drilling would take six months and require boring through 4 kilometres of rock with painstaking mathematical precision, because it must intercept the gas pocket at exactly the right point, an engineer said.
The accident has thrown a spotlight on the safety record of energy production in the British sector of the North Sea, with union officials claiming that the frequency of safety lapses has become intolerable.
The depth of the pocket leaking gas to the Elgin platform via compromised layers of piping suggests there is more gas present rather than less, increasing the pressure on Total to drill a relief well, an engineer with knowledge of the matter said this week.
The company previously said it hoped the leak would run itself dry as reservoir pressure dropped, removing the need to bore a hole that could take six months and cost up to $3 billion.
Total believes a section of well pipe 4,000 meters below the seabed - prey to conditions of high pressure and temperature - had become porous, the UK energy department said.
The government said it had convened a crisis committee of energy ministry, healthy and safety, marine and coastguard officials from England and Scotland to advise and monitor on Total's response.
Credit ratings agency Fitch said current reports of the leak suggested the incident was not as serious as the explosion at the Deepwater Horizon platform in the Gulf of Mexico.
That blast killed 11 workers and ruptured BP's Macondo well, unleashing millions of barrels of oil into the Gulf of Mexico.
BP struck a deal estimated at $7.8 billion with businesses and individuals suing over the spill.