The dormer bungalow was inherited by the trust eight years ago

The Paul Sartori Foundation claims Shalom House Trust misled it over a deal to create a hospice in St David's.

The foundation, which was to provide nursing staff, has pulled out because it wanted to see a hospice on the site, not a respite care centre.

The trust says it has misled no one as it always planned a respite care centre. Work on the home has stopped.

If the row is not resolved, more than �200,000 may have to be paid back to the assembly government.

The two west Wales charities successfully bid for up to �350,000 between them to redevelop a dormer bungalow on the outskirts of St David's.

Conversion work has halted until the dispute can be settled

The trust inherited the building eight years ago, although two years later planners at Pembrokeshire Coast National Park Authority ruled it should not be converted to a hospice because that would require too much parking.

Two years ago, the trust put in a successful joint bid with the Paul Sartori Foundation for the current conversion. The agreement was that the foundation would provide the staff for the new care facility and that the trust would supply the building for a five-bed unit.

The foundation already provides hospice care at people's homes and at a two-bed home of its own at Haverfordwest.

Voluntary sector

But the foundation's manager, Lorna Johns, said they have only recently discovered that the trust did not have the correct planning permission for a hospice, only the go-ahead for a respite care centre.

She said: "We want plans to be able to offer a hospice service and we feel at this stage that we would not have joined in a joint agreement if we had known they only had planning permission to be a respite care centre."

But Shalom House trustee Margaret Burnett said their plans for the house are what they applied for the funding for.

She said: "As far as I'm aware, we have always said respite care."

The row comes in the wake of a Welsh Consumer Council report which warns that the voluntary sector must be given more money to meet increasing demand for independent hospices.