The Queen will carry out the review in Portsmouth on 28 June

Hampshire Police Authority said that the policing operation for the events was expected to cost about �1.7m.

The Navy has pledged �510,000 and Portsmouth City Council �50,000 but council taxpayers may be forced to pay for the �1.1m shortfall.

About 250,000 people are expected to gather to watch the fleet review, the highlight of the festival on 28 June.

We are very disappointed that the navy have reneged on their promise Hampshire Police Authority

The Navy has decided to downscale its contribution from �750,000 to �510,000, according to the police.

Mike Attenborough-Cox, chairman of Hampshire Police Authority, said: "We are very disappointed that the navy have reneged on their promise and reduced the amount of funding they had agreed to help us with the policing of the celebrations, especially considering this is a commercial event."

The police are now waiting to hear from the Home Office as to whether a special grant to cover the �1.1m shortfall has been approved.

"We do not want to put a shadow over the Trafalgar celebrations, but if extra resources can't be found then there is a tough choice to be made between diverting funds from core policing activities in Hampshire and the Isle of Wight, and informing the Navy that the celebrations can not be policed as originally planned," said Mr Attenborough-Cox.

Royal Family

A Navy spokesman said it was still in discussion with the police authority and added: "It is inappropriate for us to comment at this stage."

Hampshire police Chief Constable Paul Kernaghan said: "In the light of special funding provided for events such as the G8 Summit and second-tier political party conferences, we remain hopeful that an event of such national and international significance involving mass participation will attract appropriate support from the centre."

The International Fleet Review, will involve about 56 Royal Navy ships, 59 foreign warships, 50 merchant ships or tall ships and will be attended by most of the Royal Family.

The event is marking the 200th anniversary of the Battle of Trafalgar in 1805.