Dome was insolvent within a month of Millennium Day

Confidential files showing that the Millennium Dome was insolvent within a month of opening have raised fresh concerns about Lottery money being poured into the 2012 Olympics.

National Archive files from the Millennium Commission, which funded the London Dome, show it was running out of money within days of its opening night. Commissioners were told that the Dome Experience masterminded by Peter Mandelson to mark the new millennium had stopped paying bills and would have closed early in 2000 unless it had received more money.

The 758m Dome closed as planned at the end of 2000 having pulled in just over half of the predicted 12 million visitors. Now named the O2, it is hosting the highly successful Tutankhamun exhibition and has staged a series of sell-out concerts and shows, but at the turn of the year in 2000, it was used to stage an exhibition which was panned by the critics and lost millions of pounds.

There was a fiasco on the opening night at New Year when celebrities were kept out in the cold for a security check. Many arrived at the Dome for a party long after the champagne had gone flat, and most of the food had been eaten.

Worse was to follow. The Millennium Commission was told on 28 January that the project had run out of money. John McCarthy of the commission said it was his view that the Dome's parent company, the New Millennium Experience Company, would have to make an application for extra grant within days rather than weeks to regain solvency. Mike O'Connor, chief executive of the commission at the time, told the BBC: "We always felt like we were dancing on the edge of doom. The option was give them the money they want or let it go into insolvent liquidation."

About 20 per cent of the cost of staging the Olympics will come from lottery money. The Olympic Delivery Authority has to make detailed submissions to justify awards of grant from a Lottery body which is run by Mr O'Connor, who admitted that the same "crude" checks on spending were in place. "The Olympic Lottery Distributor has the same powers as the Millennium Commission did. It has the power to give grant, to stop giving grant or to take grant back. These are very crude powers. We have no power to run the Olympics."

In March, this year, the budget for the 2012 Olympics was increased to 9.35bn by the former culture secretary Tessa Jowell who has been put in charge of delivery. The revised budget is nearly four times the 2.4bn estimate when London's bid succeeded two years ago.

Asked whether, if costs overran on the Olympics, the Olympic Lottery Distributor would have to hand out more money, Mr O'Connor said: "Nobody can give you a guarantee that they won't go over budget but I believe the budget the Government announced last March will be adequate."