The government will be asked to bail out the project to rebuild Wembley Stadium after the Football Association admitted it had failed to secure funding.

Embarrased FA chief executive Adam Crozier admitted on Tuesday that the City had failed to be convinced about the viability of the project. Funders were said to be scared off by the spiralling costs of the project which are estimated to have risen to £660 million.

"The scale of the commitment required would put our own future in jeopardy and the development of football throughout the country. The finance needed also far exceeds what the private sector can bear," said Crozier.

He confirmed that the only money that had been found was £120million of public money from Sport England.

"We cannot act as the sole sponsor of the scheme. Neither sports governing bodies, nor banks will take the risks associated with such a project," he said.

Government officials have privately been raising concerns for months that the project was set to become a red herring. They have repeatedly pointed to the Cardiff stadium project which cost only £150 million.

They have also said that a new stadium could be built in East London as part of an Olympic bid which would then attract European funding. Such a stadium would leave Wembley largely redundant.

The culture and sport secretary Chris Smith had earlier ordered the ambitious plans to be downgraded - a move which led to a public row and the resignation of Chelsea FC chairman Ken Bates from the group leading the redevelopment.

A working party, chaired by the home secretary Jack Straw, will be set up to investigate options for the project.

Speaking as the news broke, Smith refused to give a commitment to bail-out the project. "The government regrets the Football Association's decision to withdraw its support for the current plans for the redevelopment of Wembley Stadium. The FA have approached us and we have said we are happy to sit down and talk to them. We won't simply write a blank cheque," he said.

He admitted that the cost hike was the source of the problem. "It is clear that escalating costs - which have risen from £334million to £660million - have played a key role. Given it is clear that the FA cannot complete its project, the government has decided to examine all the options that are available," he said.

He gave an indication of the committee's remit. "A recent study into the issues surrounding the Commonwealth Games in Manchester has demonstrated the importance of cross government working and the same committee has therefore been asked to examine the national football stadium," he said.