Lastminute.com has been given a further week to meet its agreed timetable for refunds to package holiday customers during the coronavirus crisis.
The online travel agent had pledged, under a deal with the Competition and Markets Authority (CMA) last year, to make £7m in payments due to 9,000 customers who had holidays cancelled because of COVID-19 restrictions.
The deadline to complete the backlog was the end of January.
But in an update on Friday, the regulator said that 2,600 people were still waiting for their money.
It warned that legal action would be launched unless the payments, totalling £1m, were completed within seven days.
The CMA said that it would also go to the courts if Lastminute.com failed to meet its obligations for full refunds within 14 days from now on after it found that some customers were still waiting for their money on trips cancelled on, or after, 3 December.
It described the company's behaviour as "totally unacceptable" as package holiday firms and airlines face scrutiny over repayment practices under pressure from consumer groups.
The watchdog revealed in December that it was investigating whether airlines had breached consumer rights by failing to offer cash refunds for flights passengers could not take.
