The Victoria and Albert Museum warned last night that its radical £70m Spiral extension is in jeopardy after an application for lottery funding was thrown out.
A request for a £15m grant to build the London museum's long-awaited modernist extension, designed by Daniel Libes-kind, the architect of the replacement for the World Trade Centre in New York, was rejected by the Heritage Lottery Fund. A spokeswoman for the V&A said the decision could mean the abandonment of the project. "We are deeply disappointed by this news. Britain excels in the field of contemporary design and badly needs a national centre to showcase our creative talents.
"It is a great shame to lose the chance to provide the platform and at the same time to give London an outstanding new building," the V&A said in a statement.
"Our trustees will review the situation in the autumn. However, this decision jeopardises the future of the Spiral."
Mr Libeskind remains confident the Spiral will go ahead even though it is eight years since he submitted his original design. "I'm very disappointed, but I see no reason why the building should not be built," he said. "Great cultural projects take a long time - it's not easy to build them. These projects do require a lot of discussion.
"I'm ever an optimist. I believe this building is a signal to the whole of London that the V&A is not a dusty old building, it is very exciting."
The architect is also renown-ed for the Jewish Museum in Berlin and the Imperial War Museum North in Manchester, his first building in the UK, which was unveiled in 2002.
The museum's trustees, led by Paula Ridley, will meet in September to decided what options are open to them. They may decide to continue to try to raise private finance for the Spiral, or look at alternatives.
Carole Souter, the director of the Heritage Lottery Fund, said: "We thought long and hard about this proposal, but finally decided that it would not be able to deliver the major heritage benefits that we expect to see for such a large request for lottery players' money.
"There is no doubt that Daniel Libeskind's vision for the V&A Spiral is imaginative and technically impressive, but it did not deliver well against our key requirements of conservation, education and enjoyment of the UK's heritage," she added.
Mr Libeskind won a competition to build the shiny extension to the V&A in 1996, under the museum's previous director Alan Borg. Despite residents' concerns that the futuristic design jarred with the 19th century museum, Kensington and Chelsea Council granted it planning permission.
But the project has been dogged by a lack of money over the past eight years, even though Dr Borg's successor, Mark Jones, remains committed to the plans. In 2000, the V&A was turned down by the Millennium Commission after submitting an application for a grant at a late stage, and earlier this year the Arts Council refused the project a £5m grant.
Although the Heritage Lottery Fund has declined funding to the V&A on this occasion, in the past the body has awarded more than £17m to the museum.
A spokeswoman for the V&A said the decision did not affect other plans, including new £25m medieval and Renaissance galleries, a new Islamic gallery opening in 2006, new architecture and sculpture galleries and a redesigned garden.
The lottery fund also announced a number of projects whose grants were accepted yesterday. These include the Ashmolean Museum in Oxford, which has secured £15m for an extension designed by the architect Rick Mather, which will enable the museum to display thousands of items currently hidden away in storage.
A further £11m has been earmarked to restore the six-mile Stonehouse to Brims-combe stretch of the Cotswold canals, including original features such as accommodation bridges and locks.
Overall, the Heritage Lottery Fund has allocated £3bn to more than 15,000 projects across the UK, including grants to all 10 of the most visited museums.