The Bank of England is in talks with its currency supplier Innovia Security over doing away with the use of animal fat in the new £5 ($6.26) note.
In a statement, the central bank said: "We are aware of some people's concerns about traces of tallow in our new five pound note. We respect those concerns and are treating them with the utmost seriousness.
"This issue has only just come to light, and the bank did not know about it when the contract was signed. Information recently provided by our supplier, Innovia, and its supply chain shows that an extremely small amount of tallow is used in an early stage of the production process of polymer pellets, which are then used to create the base substrate for the five pound note.
"Innovia is now working intensively with its supply chain and will keep the bank informed on progress towards potential solutions."
The new plastic £5 note, introduced in September, was said to be more durable than the previous one. It was also heralded by many as the beginning of the end for paper money.
The BoE announcement comes just days after vegetarians called for the note to be scrapped and a petition was started by Doug Maw of Cumbria calling on the central bank to come up with an alternative.
The petition which was signed by over 75,000 people in just one day read: "The new £5 notes contain animal fat in the form of tallow. This is unacceptable to millions of vegans, vegetarians, Hindus, Sikhs, Jains and others in the UK.
"We demand that you [the Bank of England] cease to use animal products in the production of currency that we have to use."