Proposals to close the Towers Outdoor Education Centre, based near Betws-y-Coed in North Wales, received the green light due to repairs costing £600,000 – with a further £1.1 million needed to refurbish and modernise it.
Wolverhampton Council's cabinet decided it was too expensive – and not used enough by schools – and they would dispose of the building, but they stressed there was still hope for the centre.
The authority's Asset Management Board will now determine how it is sold off – potentially to a party interested in funding the repairs and ongoing running costs.
Councillor Ian Brookfield, leader of Wolverhampton Council, called on interested parties to send in "full business plans" so a decision could be properly made.
He added: "It's a sad moment – no-one ever wants to be in this position.
"Many people, including myself, have been to Towers and we are where we are.
"The fact is that schools do not want to use it anymore and it's really unfortunate.
"This cabinet can't sit here today and hand over an asset without deep talks but there may be a lifeline for it.
"The decision has to stand that we unfortunately can't continue with it, but I'm more than happy to explore these new proposals and I hope they work."
Councillor Michael Hardacre, cabinet member for education and skills, said: "I move the decision, knowing the history of Towers with a sad heart but one that says 'realism must prevail'.
"The best outcome is for one of the interested parties to have some financial back-up for their proposals."
A total of 18 schools used the facility last year out of 102, with chiefs saying they needed to focus the cash on youth services in Wolverhampton instead.
Councillor Brookfield previously pledged to help ensure everyone who booked at the facility would go to another centre at “no extra cost”.
The city's cabinet made the decision at last night’s meeting.