The fire installation was created by French artists Carabosse

The fire display, launched in Oxford on Thursday, is an example of the small events that could be hit as lottery money is diverted, the council said.

More than �110m of Arts Council lottery money is so far going to the Games.

But the government said it had made clear at an early stage that money would be redirected to the Olympics.

Peter Hewitt, chief executive of Arts Council England, said he was "deeply disappointed" at the situation.

'Real opportunity'

Last year �49.6m of Arts Council England lottery cash was diverted to fund preparations for the 2012 Olympics.

In 2007, that rose to �62.9m.

In total, this adds up to �112.9m - around 80% of the organisation's average annual handout.

Speaking after attending the launch of Luminox, Mr Hewitt said: "We still believe that the 2012 Olympics presents a real opportunity for arts and culture in this country.

"But we are deeply disappointed that more money is to be diverted away from the arts to pay for the Games.

"The impact is likely to be felt across the whole of England and disproportionately by smaller arts organisations, local projects and individual artists, the main recipients of our lottery funds."

Culture Secretary Tessa Jowell, who announced the increased budget for the 2012 Games on Thursday, said the decision to redirect lottery cash was taken "after very careful consideration".

She said: "The original memorandum of understanding made it clear that should we win the Games, we would call on the lottery to help fund them.

"I believe that that principle is widely accepted.