The decision was made by Ministers because of the current global economic turmoil, made the decision at the 2012 Funders Group chaired by Chancellor Alistair Darling.

The problems concerning the Village and the Main Presss Centre (MPC) were the focus of the meeting also attended by Chief Secretary to the Treasury Yvette Cooper, Olympics Minister Tessa Jowell, Culture, Media and Sport Secretary Andy Burnham, Communities and Local Government Secretary Hazel Blears and Transport Secretary Geoff Hoon.

London Mayor Boris John also attended, but is not a member.

The Olympic Delivery Authority (ODA), which is in charge of Olympic infrastructure and construction, revealed this month that they have been forwarded £95 million in contingency funding to enable work on the Olympic Village to proceed.

Jowell said: "The Ministerial 2012 Funders Group today approved the continuation of negotiations with private sector partners, including Lend Lease, banks and Registered Social Landlords to fund the construction of the Olympic Village.

"Due to the current situation in the credit and housing markets it is now likely that these negotiations will run into next year.

"Our priorities are to secure value for public money, the village delivered on time and a long-term asset that will provide up to 3,000 homes, with a return for the taxpayer.

"In the meantime £95 million has been identified within the £9.3 billion budget to enable work to continue on the Village so that it is delivered on time."

The change in world economic climate has "slowed things down" meaning that a deal with Lend Lease has not been concluded, a Department for Media, Culture and Sport spokesman said.

The ODA and developers Lend Lease are haggling over how much of the advance money should come from the Government, how much the construction company needs to raise from the banks - a problem in the current climate - and how much equity each will have in the Village when it comes to be sold off after the Games.

The 2012 Funders Group is expected to meet again early next year.

 

Colin Moynihan, the chairman of the British Olympic Association, claimed that the quality of the Village for the 17,000 athletes and officials who will stay in it during the Games would not be sacrificed.

 

The BOA have to approve any major changes to London's plans and the proposal to reduce the size of the village further, from 3,300 apartments to 2,700, as first revealed on insidethegames last month, will be the main topic for tomorrow's Olympic Board meeting.

 

Moynihan said: "The Olympic village is critical.

 

"Part of Beijing's great success was having the best Olympic village in history.

 

"It is hugely important to the IOC (International Olympic Committee), the BOA and the athletes so we will be looking very carefully at the new plans put forward.

 

"There is always concern when we hear of new plans and prospects of change but at this point we have not seen the next set of proposals."

 

The original plan was for 4,200 flats in order to cash in on property sales afterwards.

 

It was announced four months ago that this figure had been cut to 3,300, and that figure is now set to be cut even further.

 

That would mean six people per flat and more officials needing to be housed in hotels.