The National Academy of Writing, backed by some of the country's leading authors, has pulled out of its Birmingham office.
Organisers say the project, designed to establish the city as the creative writing capital of Britain, has floundered because of a lack of support.
The pioneering Academy counted best-selling writers Nick Hornby, Ian Rankin and Iain Banks as patrons and broadcaster Lord Melvin Bragg as honorary president.
It was due to open last October as a platform for uncovering the next generation of top novelists, poets and playwrights, aided by Britain's leading literary lights.
Academy chairman Dr Barry Turner, an established writer himself and editor of The Writer's Handbook, said: "We have given up our offices in Birmingham at the moment because it is an unnecessary expense.
"There hasn't been sufficient funding to sustain a permanent base while doing all the business work needed to establish the Academy."
The Academy was the brainchild of The Society of Authors. It aims to be a hub for talent from all walks of life, regardless of academic qualifications, unlike existing university creative writing courses. Billed as an institution "by writers, for writers", it attracted the support of 100 established authors.
Other big name patrons include playwright Willy Russell, novelists Margaret Atwood, Roddy Doyle, Doris Lessing and Jilly Cooper and poet Benjamin Zephaniah. But despite ambitions to cater for up to 50 full-time students, it never managed to properly get off the ground.
After launching at the University of Central England in 2002, it faced being homeless the following year when that contract ended.
At the time, Birmingham's Whitbread Prize winning author Jim Crace claimed the city council had 'fumbled' the project. The Academy gained a reprieve after its plight was highlighted by The Birmingham Post and Britain's largest private estate, Calthorpe, donated rent-free space in Calthorpe House, Five Ways.
But a discontinuation of £100,000 funding from the Birmingham Learning and Skills Council last year left it struggling to survive.
Mr Turner said: "Even if someone says 'here is a building rent-free' you still have to maintain it."
Last year, Mr Turner called on private businesses, philanthropists and the public sector in Birmingham for help.
Birmingham has now agreed to donate £10,000 from a £2.1 million arts pot from the Millennium Commission and the Arts Council to fund a masterclass.
But Coun John Alden (Con Harborne), Birmingham's cabinet member for leisure, sport and culture, last night appeared to question whether the facility was needed at all.
"I am not quite sure what the National Academy for Writing want to achieve in having its headquarters set up in Birmingham," he said.
"It seems to me that if people want to become a writer if they have an aptitude for it they will go far anyway."
However, Coun Alden added if organisers were to present his office with a business plan for the scheme it would be considered.
The Academy is now pinning it hopes on a joint venture which would see a part-time diploma course established at the University of Central England.
A meeting is scheduled to take place on June 20 to discuss proposals.
London-based Mr Turner added: "We are very committed to Birmingham. It is still the obvious place to be. It is the centre of England.
"It is an exciting community and things are happening there."