City of York Council has pulled out of a £9m deal to refurbish its historic Guildhall.
Officials said a contract with Interserve, which started last August, had ended because detailed costs were "significantly" higher than planned.
A major overhaul proposed for the Guildhall, which includes offices, a cafe and restaurant, has now been halted due to the rising costs.
But the authority said it remained "committed" to the development.
In a statement, City of York director Neil Ferris said under government procurement rules, the contract had to have a "break point" after its first stage, when Interserve would give a detailed build specification and target cost.
"We recognised from the start that given the site complexity and risks around the foundation structure, there was always the chance that estimate would be higher than anticipated," he added.
"We structured the procurement in this way to protect York residents from potentially spiralling costs."
Mr Ferris said the authority's "next steps are to review options to reduce costs, such as revising the scale, scope or access arrangements to the site and we will invite members to confirm their preferred option in May".
"In the meantime, to reduce delays, we will progress less disruptive works, such as fitting new utilities."
Council leader Ian Gillies said the council had been a "victim of circumstance" as costs had grown.
He said the ambition for the project was still there, but the council would be looking carefully at the plans before making another construction deal.
The Guildhall, which sits alongside the River Ouse, was originally built in the 15th Century but had to be extensively rebuilt after being destroyed by fire during a World War Two air raid in 1942.
The council moved its offices out of the complex in 2013, although full council meetings are still held there.