The £5 million scheme would have provided Newlyn, in West Cornwall, with one of the best fish markets in the country.
But the Marine and Fisheries Agency's grants panel has postponed its verdict pending further information on match funding and the future governance of the port.
The funding body, which administers the European Fisheries Fund, met at the end of last month to discuss the £2.4 million grant application. However, the panel felt it couldn't make a decision until matters related to harbour governance and match funding have been resolved.
MFA spokesman Peter Hooley said: "The business case is strong but the panel needs more information on the governance of the harbour – the harbour commissioners have not met since April.
"They need to be satisfied of the governance and that match funding is in place because this is only half of the funding required."
The applicant, Newlyn Harbour Commission, now needs to submit further information through the Government Office for South West before the grant bid can be discussed further.
However, the information is unlikely to be filed until the revised Harbour Revision Order comes into force later this year and when 10 new harbour commissioners have been appointed to run the port.
The order is still being considered by the Secretary of State for Transport before it replaces the former Newlyn Pier and Harbour Order from 1996.
No decision on the funding is expected until the New Year.
Tony Woodhams, fisheries project manager for Newlyn, said he was "pragmatic" about the decision but pleased issues related to the business case have finally been satisfied.
The grants panel rejected the multi-million pound proposal for the second time in June, citing the business case as weak.
"It's a massive investment and everything has got to be right," he commented. "There were questions about the business case so we sat down with Defra's economist to make sure that was right.
"The issues they have got now are related to the commissioners who have not had a meeting since April and that's a major issue for them. It's important and vital that all pieces are there and everything is satisfied."
The fishing community in Newlyn has reacted angrily to the decision. John Lambourn, another member of the fishing community, said: "This (Harbour Revision Order) should have been done 10 years ago. Now we are in double jeopardy of losing the funding because of the very department that should have made sure the port is appropriately governed."
article copyright WESTERN MORNING NEWS