The new museum would join the city's 'Three Graces'

The Museum of Liverpool is planned for Mann Island and will replace the current Museum of Liverpool Life.

On Wednesday, the Heritage Lottery Fund said it would not be giving the project the �11.4m it asked for, saying the plans were not detailed enough.

David Fleming, Director of National Museums Liverpool, said it was "hugely disappointed" by the decision.

He added: "We are still confident that we can raise the remaining funds to realise this great visitor attraction for the region."

Funding from the Heritage Lottery Fund and elsewhere has already significantly contributed to Liverpool's transformation Carole Souter, HLF

Planning permission for an X-shaped building to house the museum is currently being considered by Liverpool City Council.

Carole Souter, director of the Heritage Lottery Fund (HLF), said there were "positive aspects" to the application, but said there were "serious concerns" about the costs and lack of detail.

She added: "Whilst this was a difficult decision, funding from the Heritage Lottery Fund and elsewhere has already significantly contributed to Liverpool's transformation in time for the European Capital of Culture celebrations in 2008."

The North West Development Agency (NWDA) approved funds of more than �33m for the redevelopment of the planned site close to the historic "three graces" in July.

Heritage 'threatened'

In December, councillors at the city council agreed that the project could go forward on the site. It is the plans for the building which are currently under consideration.

Its modern design has come under fire from Unesco, which says that it could put the waterfront's status as a World Heritage Site under threat.

Planned exhibits will cover social history and popular culture, and will look at Britain and the world through the eyes of Liverpool.

The NWDA also earmarked a further �7m to build a canal link from the Central Docks across the Pier Head and to the Albert Dock.