CAIRNS has officially lost all $155 million promised to the entertainment precinct after the Federal Government put the last nail in the project's coffin yesterday.

The Commonwealth notified Cairns Regional Council late yesterday it was pulling its $40 million from the troubled waterfront development, saying it had no other choice but to tear up the contract.

The grand performing arts theatre proposed for Wharf St has had an uncertain future since the elections in March and April, with the Bob Manning-led council suspending the project and the Newman Government withdrawing its $57.3 million cash share.

With no firm funding or alternative plans in the pipeline, the Federal Government says the state and the council have failed to work together and all deals are off.

"Our commitment was made on the basis that it was a three-way partnership, which included the State Government and the council," Cairns-based Queensland senator Jan McLucas said.

"However, both have now walked away from that agreement."

CRC and Advance Cairns caught wind of the Federal Government taking its money off the table yesterday morning and quickly sent a letter to the Department of Infrastructure and Planning, which provided the money in 2010 as part of a stimulus package for the struggling construction industry.

But a senior departmental bureaucrat sent a letter to acting council CEO Peter Tabulo saying the Commonwealth's mind was unchanged and the $40 million contract was terminated.

Cr Manning was optimistic yesterday about "sorting out a compromise or arrangement" with the Federal Government, but would not comment further.

"We'll make a full statement (on Tuesday) after we've had a chance to think about this," Cr Manning said.

His council is in the early stages of planning a smaller performing arts complex on Ports North-owned land opposite the Cairns Convention Centre.

But Senator McLucas said the pool of money the $40 million came from is now closed, and any new funding would have to come after a robust business case is submitted.

"I will continue to advocate on behalf of the community to identify funding streams that may be open for council to apply for. Cairns deserves quality facilities that will serve us long into the future."

Leichhardt MP Warren Entsch said the Federal Government should be condemned for pulling the money because the council has shown it is serious about delivering an alternative project.

"The intention to build is clear and the capacity to build is better than ever, we're now talking about a multi-functional facility that there's a greater consensus within the community for," Mr Entsch said.

"I will certainly be arguing very strongly that we (a possible Federal Coalition Government) would support it."

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