The planned extension has been rejected by email, so not formal at moment
That's pretty normal and you should view it as an invitation to talk to them to modify the proposal - if you're willing to compromise to address their concerns. It might be that you don't have enough wiggle room in the space available to do much to appease them though.
I've just been through this myself. Don't be put off by the officiously worded email... It's all they can do and there's probably a reasonable person at the end of the phone, even if she's not saying what you want to hear.