Plans to build more than 700 homes in Portsmouth are in doubt after the government withdrew funding.
Portsmouth City Council was allocated £122 million in 2009 to build 733 council homes in Somerstown as part of a regeneration project.
Earlier the Department for Communities and Local Government announced the funding would no longer be available.
The council said it was still committed to phase one of the scheme, including 29 new homes and community facilities.
Housing councillor Steven Wylie said: "We are bitterly disappointed to hear this news.
"We have worked tirelessly with the community to produce a vision for a bright new future for Somerstown which would have allowed us to build the high-quality housing that local people need and deserve.
"We will continue to look at other delivery options so that we can achieve the best possible outcome for local people."
Phase one of the scheme includes a new community hub in Winston Churchill Avenue, which will provide health and youth facilities.
A new adventure playground in Warwick Crescent was completed in July, and work is due to start soon on 29 council homes in Warwick Crescent and Wellington Street.