Devon County Council has told volunteers behind a £320,000 scheme to create a focal point at the centre of Bishopsteignton it can no longer afford to put £120,000 into the pot.
It says the latest ice and snow has put paid to any extra cash in the highways budget.
Disappointed members of the Bishopsteignton Enhancement Scheme say they will fight on to convince the council it is a worthwhile project.
Committee member and parish councillor Roger Hunt said: "What we are asking for, in terms of such a large council, is a relatively small sum.
"We feel aggrieved they have pulled the plug now."
Teignbridge Council has committed £50,000 and donated land valued at £110,000 and Bishopsteignton Parish Council has managed to raise £30,000 towards the project.
But it all hangs in the balance without county backers.
Cllr Hunt said: "There is huge disappointment from a lot of people who have given up years of their time for this project.
"More than 300 people have given their views about the scheme and time and time again it has emerged as a priority for the village."
Cllr Hunt said they would do all they could to convince county backers to reconsider.
"We will fight on," he said.
Committee member Colin Day said they were disappointed but would not give up.
He said: "We are not going to just roll over every time we come up against a hurdle.
"We have worked very hard to get where we are and to raise the money that we have.
"We are not going to give up at the last fence."
The plans to create a village square at the junction of Bishops Avenue and Fore Street were first mooted in 2006.
Villagers have given their strong support to the scheme during two public consultation exercises.
Alun Williams, district councillor for the village, is to ask Teign MP Richard Younger-Ross to take up the matter with County Hall.
A Devon County Council spokesperson said: "Unfortunately, it is just not possible for the county council to fund this project now, or in the foreseeable future.
"The highway structural maintenance budget is under severe pressure which has been exacerbated by the adverse weather conditions last winter and more recently and it is not possible to justify the expenditure over much needed structural repairs to Devon's roads."