The fate of architect Daniel Libeskind’s £70m spiral extension to the Victoria and Albert museum in South Kensington, London, will be decided at a meeting of museum trustees in September

The board, shocked by the decision last week by the Heritage Lottery Fund to block a bid for £15m of public money, will decide whether to abandon the campaign to raise money for the scheme.

The trustees will consider three options: to keep searching for public funds, to consider an alternative scheme, or to abandon the project.

Peter Rogers, the chairman of the strategic forum, who sits on the board, described the Heritage Lottery Fund’s decision as “hugely unfortunate”.

He said: “There are a lot of private donors to the scheme but we need public money or the whole thing’s scuppered. We are talking to the Department for Culture, Media and Sport to work out where we go from here.”

One option could be to scale down Libeskind’s distinctive spiral design, but Rogers said this would reduce the impact of the scheme.

He said: “It’s a very dramatic scheme that would be a huge benefit to the whole area around Exhibition Road. The V&A is a design museum but the one thing it doesn’t have is a modern exemplar building.”

Building understands that the scheme fell foul of the Heritage Lottery Fund’s preference for smaller grass-roots projects, as opposed to landmark initiatives.

Carole Souter, the fund’s director, said: “There is no doubt that Daniel Libeskind’s vision for the V&A’s spiral is both imaginative and technically impressive, but it did not deliver well against our key requirements of conservation, education and enjoyment of the UK’s heritage.”

The project had previously hit problems securing funding for Libeskind’s design. In 1997 it was denied funding by the Millennium Commission when it was declared “insufficiently distinctive”.

A Rafael Viñoly scheme in Colchester, Essex, could be heading for trouble after a leaked report by the East of England Development Agency said it was poor value for money.