The initiative, which aims to attract thousands of tourists to the Titanic Quarter, had applied to receive 25m of lottery money and has now failed to reach the final funding shortlist for the lottery's Living Landmarks Fund.
Tourism Minister Nigel Dodds said the decision left a large gap and he would now consider other sources for funding.
Titanic Foundation chairman Brian Ambrose said the plan had been well pitched to fund managers and the decision was a setback.
"I think the team did a tremendous job in presenting the project and I'm disappointed we haven't been selected," he said.
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"But as far as the project goes we dust ourselves down, we move on and we're still determined to deliver this project on time for the centenary in 2012."
Robin Newton, MLA, and east Belfast councillor, has been keen on developing such a scheme for some time.
He explained that National Museums Northern Ireland has already commissioned a feasibility study on a ‘Museum of Sea and Sky’ project within Titanic Quarter, the major commercial development being built at present in part of the former Harland & Wolff shipyard.
“Already, National Museums, via the Ulster Folk & Transport Museum (UFTM) site, holds key archival collections in the form of technical drawings and photographs related to Harland & Wolff and continues to have an ongoing relationship with the company in terms of collecting and making collections accessible.
“Additionally, the museum has collaborated with the ‘Titanic Made In Belfast’ exhibitions staged by Belfast City Council and more latterly has presented a profile-raising ‘Titanic Built In Belfast’ exhibition in Washington D.C. as part of the ‘Rediscover Northern Ireland’ programme.
“Despite this setback, I very much look forward to the completion of what will be, when finished, a unique, authorative guide to what was once Belfast’s proud engineering heritage,” he concluded.
(BMcC)
