Joint council leader Andrew Carter has insisted that the 12,500-seat city-centre facility will be built with or without central government help.

However, Sheffield MP Clive Betts says the correct decision has been made, and that it would be unfair for Yorkshire Forward to support Leeds Arena, which might have undermined Sheffield Arena.

The thumbs down follows a Department for Business, Innovation and Skills ruling that the £78 million arena does not provide value for money, although they may reconsider a revised project.

A spokesman said: “After reviewing the Yorkshire Forward proposal for the Leeds Arena project, the independent Industrial Development Advisory Board has recommended that it can be developed further to provide the best possible value for money.

“We have asked Yorkshire Forward to work with Leeds City Council on this, and would consider any new proposal they put forward before deciding whether to approve an investment.”