Treasure Island's success has boosted the theatre

The council has announced �3m in investment for theatre in the city over the next three years, but will not fund the financially ailing Playhouse.

The theatre investment from the council will be spent on projects initially co-ordinated by Derby City Council.

Playhouse director Jonathon Powers said he was shocked by the decision.

"What amazes us about the Arts Council decision is this plan was backed by a major high street bank -- who should know about money -- and by the administrator," he said.

We decided that the current Derby Playhouse was not the appropriate vehicle to invest public money into The Arts Council

"The artistic programme here has been absolutely outstanding, and we're one of the largest employers in the region altogether of actors and musicians on stage."

He said the theatre will spend the next few weeks looking for alternative funding.

"We will have to cut our cloth to fit - but we are convinced we can do it."

The Arts Council decided to review its support for the theatre after it went into administration.

"As a result of that review we decided that the current Derby Playhouse was not the appropriate vehicle to invest public money into to deliver a produced theatre programme in Derby."

13,000-name petition

A spokesman said that since 2000, in addition to the annual grant of �750,000, the council had handed over �1.6m.

He added that the Arts Council was not convinced by arguments from the Playhouse "asserting its ability to build a new, viable model".

The council will invest money in seven arts organisations in the area, including Sinfonia Viva and Derby Dance.

Supporters of financially troubled Derby Playhouse handed a 13,000-name petition to the city council last month.