PLANS for the multi-million pound Leeds Arena have been thrown into turmoil after the Government snubbed Yorkshire Forward's bid for £18 million of funding.
The controversial proposal was being considered by the Department for Business, Innovation and Skills (BIS) which said it would need to be further developed to provide "the best value for money".
It is understood to have been turned down because too few jobs would be created, but Leeds City Council have insisted however that the project will go ahead - even if a revised bid is also rejected.
Joint council leader Andrew Carter said they would look at restructuring finances and promised the arena will be built with or without government help.
Sources at regional development agency Yorkshire Forward have revealed they remain confident a revised proposal will be successful and chief executive Tom Riordan said they are committed to the project.
A BIS spokesman said: "After reviewing the Yorkshire Forward proposal for the Leeds Arena project, the independent Industrial Development Advisory Board has recommended that it can be developed further to provide the best possible value for money.
"We have asked Yorkshire Forward to work with Leeds City Council on this, and would consider any new proposal they put forward before deciding whether to approve an investment."
Mr Riordan said: "We are very much still working with the council to make sure that we can make the investment.
"It is live project and we are committed to making sure the arena happens."
The project has provoked a war of words after Sheffield MPs lobbied against the bid fearing it would affect the Sheffield Arena.
Leeds MPs fought back, saying those in South Yorkshire should "keep there noses out", and last week Gary Williamson, chief executive of the Leeds, York and North Yorkshire Chamber of Commerce, branded the lobbying as "pathetic".
Clive Betts, MP for Sheffield Attercliffe, said the Government's decision was a "sensible course of action".
He said: "We have to reflect on the potential damaging effect on the Sheffield Arena of any proposed arena in Leeds."
Coun Carter said the proposal has been rejected on "completely the wrong premise".
He said: "It is not a job creation scheme, it is a much needed pop music venue for Leeds and one of the spin offs would be jobs.
"The scheme is not in jeopardy, if we are unsuccessful then we will look at ways to restructure the financial package so it goes ahead.
"This is just another example of the Government letting Leeds down."
Sheffield International Venues (SIV) have claimed a survey on the impact on Sheffield Arena revealed up to 62 per cent of events could be affected, income could be reduced by up to 67 per cent and annual losses could be as high as 1.8m.
Steve Brailey, chief executive of SIV, said: "Our view is that there is only demand for one arena of this size in the region.
"It would seem unwise for a local authority to be investing so much money in an arena at a time when public services are under threat."
Ian Williams, of the Leeds, York and North Yorkshire Chamber of Commerce, said: "I am completely dismayed, there was a good business case, strong economic benefits and jobs to be created.
"The reaction we have seen from Sheffield has been really disappointing."
Labour's regional minister for Yorkshire Rosie Winterton said: "Yorkshire Forward will be working further with Leeds City Council on the bid so they can come back to the department with a further proposal."