The cash was offered by East Lindsey District Council, which opposes the shutting of the Scarborough Ward.

East Lincolnshire NHS Primary Care Trust has closed the ward over the winter to reduce a �7m budget deficit.

Officials at the trust said they were unable to accept the money because it would be "unlawful", but were unwilling to comment further.

It's a gift - it would not have to be paid back Jeremy Webb, East Lindsey District Council

In a statement the trust said it appreciates the generous offer made by the council.

It added "thorough consideration" was given to the offer but following legal advice it had declined it because officials had "clear indications that it would be deemed unlawful".

The move surprised councillors who wanted to help save a vital health facility in their community.

Jeremy Webb, leader of East Lindsey District council, said they offered the money because "we believe this is the saving that would be made from the temporary closure of the ward".

"It's a gift - it would not have to be paid back.

'Major problem'

"There is a real governance issue at the moment in the public sector. It is devastating news for the public, in a very deprived area.

"We have a PCT which is strapped for cash and a high volume of older people in the population, we have a major problem.

"The health authority gets 8% less funding than the average for England and the council receives 20% less."