Glasgow's Lambhill Stables has been turned down for Scottish Government funding despite securing a grant two years ago.
The project provides gardening classes, vocational training, arts and crafts, cookery and guided walks in an area once described as "no-go" by locals.
It was awarded the Climate Challenge Fund on a one-year basis, but has failed to land renewed funding.
Five members of staff are now working on half pay because of the loss of funding.
The grants panel said the project was not "sufficiently focused" on carbon-reducing activities to qualify for renewed support.
However the £1.5million project, which refurbished a 150-year-old derelict stables, was nominated for Best Green Community Initiative 2011, in an awards scheme run by ScottisPower.
Stewart Stevenson, Minister for Climate Change, described it as an "exemplar project" at the launch of the new three-year Climate Challenge Fund in October last year.
David Cruikshank, project director, said: "We don't really understand the change of heart."
A meeting has been arranged with Bob Doris, SNP MSP for Glasgow, and the panel of Keep Scotland Beautiful, which manages the fund on behalf of the Scottish Government. The fund will invite new applications in September.
The project has suffered repeated acts of fire damage and vandalism since it opened just over a year ago.
It receives some funding from Glasgow City Council and lottery aid.
Mr Doris said: "I have been disappointed that Lambhill Stables has been unable to secure on-going project funding.
"I have been working with Lambhill Stables to improve their bid with the Scottish Govern- ment's Climate Challenge Fund.
"I have also encouraged the group to seek to participate in a new climate challenge pilot project for social enterprises being considered by the Scottish Government."