Plans for a £290 million redevelopment of Hove seafront by architect Frank Gehry are in disarray today after a Government report found gaping holes in the scheme's finances.

The District Valuation Office (DVO), a wing of the Inland Revenue, says the King Alfred towers and leisure complex aren't financially viable and could run as much as £29 million over budget.

Its report warns developer Karis will not be able to meet the 40 per cent affordable housing target set for the site and that the "most realistic" way of providing the leisure complex, originally promised free-of-charge, would be for Brighton and Hove City Council to contribute a significant portion of the £36 million cost of the leisure complex part of the development.

The council has agreed to reduce the 40 per cent requirement for rented social accommodation and shared ownership schemes to 37.3 per cent.

But Karis and the council will still have to rethink a substantial part of the plan, DVO officer Charles Solomon has warned.

His report, commissioned for £20,000, suggests scaling down the leisure complex as another way of meeting costs. He also warns that under the current plans Karis will not have enough money to make any contributions towards improving the infrastructure and amenities to cope with the influx of new residents to the area, known as Section 106 payments.

Karis will need to double its £25 million estimated profit if it is to be able to afford to provide the development originally envisaged, the report says.

Campaigners fighting the plans described the report last night as "absolute dynamite".

Valerie Paynter, of Save Hove, said: "It proves they can't keep going on like this because the scheme is totally unviable and is now going directly against what this scheme was meant to be all about. It's what we've said all along."

Hove councillors Averil Older and Jan Young said the project was now in tatters. Coun Older told The Argus: "If this scheme does not stack up, and the figures point to that, then we have wasted years and a lot of money on it and I'm very angry."

A council spokesman said: "This report will prove to be valuable tool as the council moves into final stages of negotiation of the section 106 package and the subsequent discussion at planning committee."

Sue John, the council's deputy leader and chairwoman said: "Without a doubt we are at a critical time but I don't think there is anything in that report we should be worried about."

Karis insisted the project was not in jeopardy and claimed there were inaccuracies in the report. A spokesman said: "This is a viable £290 million scheme which is incredibly exciting for Brighton and Hove."