Rising costs have seen the government's support disappear

Transport Secretary Alistair Darling has refused to support the system linking Fareham, Gosport and Portsmouth because of rising costs.

The scheme was estimated to cost �170m but the need to dig a deeper harbour tunnel brought a higher price tag.

But county council boss Ken Thornber has vowed to fight for support.

To do nothing is not an option and that would be a huge blow to so many County council leader Ken Thornber

The council and Portsmouth City Council have spent �9.5m of taxpayers' cash on developing the scheme since 1990.

Councillor Thornber said: "This decision makes no sense at all.

"To do nothing is not an option and that would be a huge blow to so many.

"We've already left the government in no doubt about the widespread commitment to South Hampshire Rapid Transit and how it represents good value for money, and underpins the transport strategy for the whole of south Hampshire.

"We will now be examining with the government the options as there can be no stronger case for investment than in south Hampshire."

It was thought 10m people would have used the trams each year

He added that increased house building could not be supported without innovative transport schemes.

A 40% increase in traffic is predicted by 2020 and it is claimed that 10m passengers would have used the trams every year.

But earlier this year the National Audit Office warned that support for future schemes was at risk because of the failure of existing ones.

The Hampshire scheme's costs increased after the MoD demanded that a proposed tunnel under Portsmouth harbour had to be deeper to accommodate new ships.

Higher insurance premiums, inflation in construction costs and a "cautious" assessment of future income from fares were also blamed.

Portsmouth City Council's leader, Councillor Gerald Vernon-Jackson, said: "This is a huge disappointment for Portsmouth and unfortunately the transport problems that we were trying to address through this project do not disappear."

Outlining his future transport plans on Tuesday, Mr Darling also scrapped light rail schemes in Manchester and Leeds.