The Special European Union Programme Body has withdrawn funding for a proposed peace and reconciliation site at the former Maze prison.
Up to £18m (€21m) had been earmarked for the project.
The Democratic Unionist Party earlier halted plans to build the facility at the Maze, near Lisburn, as relations with their powersharing partners, Sinn Féin, deteriorate.
Republicans have warned of a crisis facing the devolved administration after a summer of violence on the streets.
The EU had offered the money, but after talks with the Office of the First Minister and Deputy First Minister the body responsible for allocating the finance said it had decided the project was no longer viable.
It said: "The SEUPB has been in discussions with the Lead Partner in relation to the viability of the Peace Building and Conflict Resolution Centre.
"It has been agreed that the project is no longer viable at this time and the SEUPB has therefore rescinded the letter of offer.
"The SEUPB will now consider the re-allocation of funding to suitable projects."
The Maze housed paramilitary prisoners from the 1970s until 2000 and critics of the new development feared it could become a shrine to terrorism.
The prison hospital where ten republican inmates, including Bobby Sands, died while on hunger strike in 1981 is among parts of the jail that were retained when the site was cleared for redevelopment.
A watchtower and one of the H Block cells were also kept.