The move is another embarrassment for the Government's Public Finance Initiative. Last year ministers announced that the Lewisham extension of the DLR would have to be financed entirely with private money.
The Department of the Environment - which funds the DLR, currently owned by the London Docklands Development Corporation but eventually to be privatised - is now going to pay at least pounds 50m of the estimated pounds 120m construction cost.
The move is a bizarre side effect of the announcement earlier this summer that rail fares would be capped at inflation or below for at least the next four years. The price of London Transport's Travelcard, which will represent a major proportion of income from travellers on the Lewisham extension, will also be pegged and this will severely restrict the potential for raising money from these passengers.
Therefore, the DLR management was forced to advise the DoE that without a subsidy towards the construction cost, none of the four bidders seeking to build the project would be able to tender. The scheme, which received its Royal Assent in May 1993, should have been completed next year. Now the earliest possible completion date is 1999.
The DoE was virtually forced to bail out the scheme, which is seen as a vital component of the Millennium site at Greenwich, the favourite of the four contenders - Bromley by Bow, Birmingham and Derby are the others - to host the celebrations.
The DoE has also had to step in because of an increase in the expected cost of the scheme. The Government had to back down over plans to scrap Island Gardens station, just north of the Thames, after local residents argued successfully that it was part of the original Parliamentary legislation.
There is still a dispute over whether the pounds 13m station next to the Cutty Sark, just south of the Thames and potentially the most useful station on the system for tourists, will be built. So far Greenwich council and other local organisations have raised only about a fifth of the cost of its construction.
The Government may be forced to fund it because of its potential use during the Millennium celebrations, when some 12 million people are expected to visit Greenwich, five times the normal annual number.