The world-famous festival pavilion - where Pavarotti made his debut - was inviting architects to come up with ideas for a complete rejuvenation of the site ( Architect wanted for one of Wales's 'most prestigious' design projects), but the £32 million project is now looking increasingly unlikely to be completed.
Pavilion chief executive Gwyn Williams said the team were very disappointed, but refused to admit that it meant the end of project before it had even begun.
'We made an application for Living Landmarks with the Big Lottery Fund, but we weren't successful,' he said.
'We are now looking at the EU and the government to secure funding, but obviously we will not be able to build on the scale we wanted to before as the money is not there.'
Williams added: 'It's ironic really. We are arguably the most successful festival in the UK, but we can't secure funding for a new pavilion. It's like the old saying of success and failure being on opposite sides of the coin.'
Capita Percy Thomas architect Jonathan Adams, who designed the Wales Millennium Centre in Cardiff, spoke of his surprise of what he calls 'one of the most prestigious projects in the UK' was denied funding.
'It is a massive festival, which has been going for long enough to justify substantial revamping,' said Adams. 'I'd be very surprised, however, if they continue to be turned down.
'I don't think you could ask for a more laudable cause. It wouldn't just be one of the most prestigious projects in Wales, but in the whole of the UK. It was a £20-£30 million project, which is a significant size anywhere, not just Wales.'