Although the reduction will be slightly less severe than first suggested, the £150,000 offered falls far short of the current £400,000 grant.

According to the theatre’s board and executive, the worst-case scenario would be sacrificing the theatre’s in-house produced shows and the work of the outreach department if no other funding is found.

But the theatre has vowed it will fight on and said there are still options open. Investigations into the legal options have already begun, including the possibility of an investigation by the parliamentary ombudsman.

Phil Willis, MP for Harrogate and Knaresborough, has offered his support and raised an early day motion in Westminster asking for the decision to be overturned in recognition of the theatre’s hard work.

In a statement, Mr Willis added: “I am dismayed that the wonderful outreach work that is provided for the rural communities around the district and the educational work that is done with young people is now all at risk.

“Whilst money is being poured into the Olympics the arts, and particularly regional arts, seem to be being starved of resources. I will do all I can to secure a bright future for Harrogate Theatre."

Chairman of Harrogate Theatre’s board Jim Clark said: “Obviously we are grateful for the £150,000 that remains but the Arts Council have supported and regarded us as an arts development partner for rural North Yorkshire for many years.”

But he said the Arts Council’s decision undermined its own previous support for Harrogate Theatre’s work across the district, particularly in rural areas.

Almost 200 arts centres around the country had their funding threatened and Harrogate was one of only 17 to have its proposed cut revised. Only nine of these have had their full funding reinstated.

The decision comes after one of the most successful years the theatre has ever had, with packed audiences, a popular pantomime and a refurbished auditorium.

The Arts Council has been criticised by groups including actors’ union Equity, while Harrogate Borough Council and North Yorkshire County Council, who both provide additional funding to the theatre, have both pledged their support for its future.