The watchdog responsible for scrutinising Birmingham's Queen Elizabeth Hospital has refused to back a planned £550 million rebuild.
It has written to Mark Britnell - chief executive of the University Hospital Birmingham NHS Trust, which runs the Queen Elizabeth and Selly Oak hospitals - setting out a series of concerns about the proposed deal.
It was revealed this week that plans to build a new 1,249-bed super-hospital have still not been approved.
The Treasury was expected to authorise the scheme last March, but the decision has been delayed by almost a year and Ministers have ordered a national review of the hospital building programme.
Now it has emerged that Monitor, the independent regulator, has refused to endorse the project.
Monitor is the official body set up by the Government to oversee foundation hospitals, which include the Queen Elizabeth Hospital in Edgbaston.
The minutes of a Monitor board meeting dated November 28 reveal the watchdog had "several concerns".
It was worried the rebuilding scheme depended on a £109 million grant from the Department of Health, which has still not been confirmed.
The trust had failed to take into account the need to make efficiency savings and may also have failed to take into account the cost of moving to a new hospital, the board said.
The board wrote to Mr Britnell expressing concern three times, most recently last November.
They also reveal the Department of Health asked Monitor to endorse the rebuilding scheme but the watchdog refused.
Ministers cast doubt over the hospital rebuilding programme when they launched an investigation into a similar scheme in London.
Health Secretary Patricia Hewitt ordered an "urgent review" into a £1.2 billion Private Finance Initiative project to rebuild the St Bartholomew's and the Royal London hospitals, in London.
The Queen Elizabeth project, which includes a specialist psychiatric hospital as well as a 1249-bed acute hospital, is also funded using the Private Finance Initiative (PFI).
This involves private companies raising the capital to redevelop hospitals, which NHS trusts pay off over 25 years. But Westminster insiders believe the Treasury is having second thoughts about the PFI because the NHS is already facing a £620 million deficit.
Birmingham MP John Hemming (Lib Dem Yardley) said: "The pot at the end of the PFI rainbow is not gold but lead. The PFI just doesn't work because it is ludicrously expensive."
A Department of Health spokesman said: "A number of PFI schemes are reaching a critical moment in their contracting process and are, therefore, being subjected to the sort of detailed scrutiny that the public would expect in a major procurement."
The spokesman said no decision had been taken about the Queen Elizabeth.
He said: "The trust is still finalising its business case. Once the technical details of this scheme have been finalised, the department and the Treasury will begin consideration of the case."