Campaigners say restoration will help boost the local economy

About �6m was to be injected into the Cotswold Canals Partnership, to help reopen a 230-year-old waterway link between Stroud, Bristol and Gloucester.

But the organisation said funds needed to be diverted to the urgent repair of the Monmouthshire & Brecon canal in South Wales.

Just last November, the project failed to secure a �19m lottery grant.

British Waterways chief executive Robin Evans said: "We have thought long and hard over this decision and know it will disappoint our partners in the project.

"Ultimately, however, we have a finite pot of money and the needs of our existing waterways must take priority."

Local economy

He said about 16 miles of the Monmouthshire & Brecon canal was currently closed and needed significant investment over the next 18 months.

"These works are essential for those businesses and communities that depend upon and contribute to the canal and we are committed to getting it up and running in time for the 2009 cruising season," he said.

Campaigners for the Cotswold Canals Partnership said restoration would help boost the local economy.

Liz Payne, chairman of the Cotswold Canal Trust, said that while the loss of British Waterways' sponsorship was disappointing, she was confident a new partner could be found.

"It's no good falling down on the floor, kicking and screaming. It gets no-one anywhere," she said.