The beleaguered monument in London's Hyde Park was described as a 'muddy bog' and an 'open drain' by members of the Public Accounts Committee (PAC).
The initial cost of the project was set at £3 million but following a run of problems the figure rose to £5.2 million, it was disclosed.
More than £700,000 of that overspend was on changes made after teething problems caused the fountain to shut three times after opening in July 2004. The opening ceremony alone cost more than £300,000.
Department for Culture, Media and Sport permanent secretary Sue Street and Royal Parks chief executive Mark Camley were called before the PAC to face tough questioning about the troubled tourist attraction.
Street admitted regretting that estimates for visitor numbers failed to take into account how popular the tourist attraction would be when it was first unveiled by the Queen.
She added that 'coachloads of children arriving in their swimming trunks' had not been envisaged. Labour MP Sadiq Khan described the monument as a 'fiasco', but Street insisted this was not the case.
'It's been a troubled project with a good and lasting outcome,' she said. 'There were difficult lessons to learn about the structured project management discipline ... but I don't think it can be described as a fiasco.'
The memorial, which features a granite moat, had to be closed after just two weeks when it became blocked by fallen leaves, suffered a broken pump and saw visitors slip while paddling - which was subsequently banned.
In January this year it closed again for alterations including new turf, a reinforced hard-wearing path, improved drainage to stop waterlogging and a leaf filter, before reopening in May.
In a bruising committee session, chairman Edward Leigh said the memorial had the appearance of an 'open drain', asking: 'Why did it end up like a muddy bog after the first couple of weeks?'
Mr Khan criticised the officials for failing to realise how many people would be interested in the site, given that Diana's death was such a 'big deal'.
'I find it implausible that nobody said ... lots of people want to go to the memorial,' he said.