The Arts Council’s funding for The Public will cease after the decision was taken to transform the gallery into a sixth form college.
The body had a deal in place to pump £600,000 into an arts and digital project at the West Bromwich venue until 2015.
Of that money, £300,000 had already been given to the gallery but the remaining half will not be paid to the New Street gallery anymore.
It comes after Sandwell Council’s ruling Labour group decided unanimously to proceed with a proposal to turn the venue into a college for 500 A-level students.
The plan is not just for an arts college – as it would offer varied courses and subjects – but it would include arts space and a business support facility.
Peter Knott, Area Director, Arts Council England, said: “Like everyone involved we were disappointed that the finances were no longer available to support The Public in its current form, particularly as it had begun to enjoy such success. However, we are pleased that Sandwell Metropolitan Borough Council and Sandwell College plan to have an arts-based programme aimed at the general public.
“The council has demonstrated their on-going commitment to art and culture in the borough by pledging £200,000 per year, for five years. We hope this will deliver a high-quality arts programme into the future and we are working with partners at the council and in the arts sector to achieve this.
"Sandwell Arts Trust has stated that they won’t be drawing down any additional payments from their grant. We are currently exploring opportunities for people in the Black Country to continue to experience high quality arts and culture.”
Borough council leader Councillor Darren Cooper has said the transformation of The Public into a sixth form college would save taxpayers £37 million over the course of the building’s proposed 25-year lease to the college, instead of the council maintaining its current annual subsidy of nearly £1.6m.
The borough’s ruling cabinet will be asked to rubberstamp the move on October 16.
It would mean temporarily closing The Public’s doors in November to allow conversion work on all floors of the building in time for a sixth-form centre there to open in September 2014.
Businesses and community groups which are currently based at the building, but which need to relocate, are being given help by the council to find new homes.