Council bosses have performed a U-turn over a new enterprise hub at Great Harwood town hall.
Senior councillors insisted last month that a planned half a million pound revamp of the building would definitely survive cuts to the Local Enterprise Growth Initiative (LEGI) fund.
But now this fund is in jeopardy of being axed under coalition government cutbacks.
The Victorian building was sold off to regeneration arm Globe Enterprises earlier this year to boost the grant bid.
Sources have estimated the sale at around £375,000 - less than the funding now at risk - although the council has a one-third share in Globe.
The town hall refurbishment is now among six schemes on a local priority list, following a restructuring of monies allocated to the doomed North West Regional Development Agency (NWDA).
A final decision will be reached by Regenerate Pennine Lancashire next month.
The proposal would bring the Queen Street building back into use for the first time since the town’s urban district council was dissolved in 1974.
Deputy council leader Peter Clarke said: "The scheme was approved, but we hadn’t got the money as the Labour government promised money they hadn’t got. To get the LEGI money they had to be a private enterprise and that’s why it went to a joint venture company."
There is as yet no timescale for the refurbishment programme, which is to create a business hub for new and failing firms.
The project could involve major improvements to the town hall exterior, and mirror Accrington’s Globe Centre complex.
The town’s regeneration board is meeting next Tuesday, where the matter will be discussed along with the closure of the Natwest bank on Town Hall Square.
The planned revamp of the square and Blackburn Road will also not go ahead if the £50m Pennine Reach rapid bus scheme is scrapped, as expected. And Mercer Hall swimming baths has recently had £400,000 of pledged Sport England finance pulled.
Independent Great Harwood councillor Ian Robinson said: "A lot of money has been lost and I think anything that’s been contracted is going ahead and anything not contracted will probably not go ahead. My fear is that we won’t get what we need. We have three big stores now with the Morrisons, Tesco and Aldi, and Great Harwood needs to look the part."
Globe Centre director Stuart Nevison said: "My understanding is that there are various projects that have been relinquished, but I think Great Harwood town hall remains high on the priority list as something that is of great importance to the borough council. It’s a significant refurbishment because the property is quite an old property and also needs to be done tastefully with the agreement of local people."
MP Graham Jones described the situation as ‘a shambles’.
He said: "The people of Great Harwood seem to be taking blow after blow. Treasury officials have confirmed spending commitments made by the previous government had been ratified and this is a choice to make these cuts."
Mr Jones also revealed that he met with health chiefs last week to discuss a new health centre for the town. He called for the district council to work with East Lancashire Primary Care Trust (PCT) to ensure the project gets off the ground before the PCT is dissolved.