Funding for the 2012 athletes’ village will come entirely from the public purse after the government rejected a £375m private sector deal with Lend Lease

The Department for Culture, Media and Sport said on Wednesday that it would invest a further £324m from its contingency fund and cash savings, which it expects to recoup when the flats are sold after the Games.

Lend Lease and its banking consortium had offered £150m in equity and £225m in bank debt, but the deal was rejected owing to the risks associated with private funding.

Tessa Jowell, the Olympics minister, said: “Because of the credit crunch a private sector deal was not a good deal. By funding the entire project the village will become publicly owned and the public purse will receive substantial returns from sales.”

She said other sources of private investment could be sought in the medium to long term.

Lend Lease will continue as construction and development manager of the village.

Dan Labbad, chief executive of Lend Lease Europe, said the company’s offer “still stands” but added that it would be looking for other opportunities in the area. He said: “We didn't come to Stratford just for the village – we wanted to make a commitment to east London. Now we are free to look at other things.”