Business and political leaders are adamant Jaguar's Browns Lane factory must remain a site for manufacturing industry after the deal to sell the site collapsed yesterday.

Jaguar's plans for a smooth exit from the Coventry site, which ceased car production last year, lay in ruins after prospective buyer Delamar failed to secure the funding for the deal to go ahead.

The company's chairman Peter de la Marche opened negotiations in March to create a factory making modular buildings and generating about 2,000 jobs at the site over the next two years.

But, according to Jaguar, Delamar failed to meet at least three deadlines to come up with the estimated £40 million to £50 million needed to buy the 117-acre site.

As Jaguar began looking for a new buyer for the factory, Coventry City Council vowed to oppose any steps to convert it to housing which could see its value more than double.

Council leader Ken Taylor (Con Earlsdon) said: "We've always made clear that this site should be redeveloped or reused for industrial purposes, either by one owner or as a modern industrial or business park, and this remains a priority for the council."

Dr Brian Woods-Scawen, chairman of the Coventry, Solihull and Warwickshire Partnership, which promotes the growth and prosperity of the sub-region, said: "I would not want to see housing at this site, it is too important for that.

"I would not want to see a distribution centre either which would only employ a few blokes packing and unpacking things.

"Although the site is now back on the open market, it is important to remember that Browns Lane is a valuable, strategic site that I am sure will be in demand for major investors.

"The excellent location coupled with the skilled workforce in the region, means that the Browns Lane site will be an attractive proposition for investors and will remain a serious source for investment and jobs in Coventry for years to come."

A spokesman for Jaguar said the company had been very supportive and trying to help Delamar with its plans, by moving back the deadlines for payment and allowing a team from the company to set up an office at Browns Lane.

A final deadline at the end of September was not met and so Jaguar decided to put the site, where around 500 of its staff still work, back on the market.

The spokesman said: "We have reached a point where we have to move forward and Delamar has now agreed to leave the site.

"There is still a substantial interest, including from Delamar, which still hopes it can buy it."

The spokesman said there was a desire to maintain manufacturing at Browns Lane, but would not be drawn on whether housing would be considered. "We will look at all the proposals, but maintaining manufacturing is the desired outcome."

Geoff Polites, chief executive of Jaguar and Land Rover, said: "We are obviously disappointed that Delamar have not been able to meet the agreed deadline for funding at this stage.

"We have been very patient, but for our own business purposes must now consider other options. We need to achieve a certainty about the disposal of the Browns Lane site.

"It was our desire to see the Delamar project work out and we have gone to great lengths to support it.

"But in the end they couldn't meet the agreed deadline for funding."