Government funding to develop a digital village in the Liberties area of Dublin has been halved following concerns raised by senior officials at the Department of Finance.

Development of the project, which will promote a multimedia and digital content "hub" in the Liberties area, will also be delayed beyond its deadline of December 31st, 2003.

In addition, sharp disagreements between Finance officials and the Department of the Taoiseach have emerged over the acquisition of property and governance of the project.

These differences have delayed the purchase of key properties close to the Guinness brewery including the Hopstore, which will house the Government's flagship joint venture with MIT, Media Lab Europe.

It has also been learned that operational control of the digital project will move shortly to the Minister for Public Enterprise, Ms O'Rourke, from the Taoiseach's office.

Sources said yesterday just £50 million (#63.5 million) would be allocated to develop it instead of the £100 million originally proposed by the agency developing the project, Digital Media Development Ltd.

It is understood Finance officials were concerned at the capital cost of the project, the rapid downturn in the technology sector and several elements relating to the governance of the project.

The £50 million funding, which is expected to be allocated shortly, will be used to purchase four land banks in the Thomas Street area.

These properties will include the Guinness Hopstore building which will be purchased for £15 million and will house the flagship tenant of the digital hub concept, Media Lab Europe.

Three of these property deals should be completed soon while a fourth property will be available next year.

The ongoing review and scaling back of the project has forced it to set lower target figures for attracting private sector investment.

The agency now believes it will attract up to £150 million over the next 15-18 months instead of the £300 million originally envisaged.

Documents released under the Freedom of Information Act show that a series of disputes between Finance officials and the Department of the Taoiseach have delayed the project's implementation.

One of these centres on the draw down and lodgement of £15 million in an escrow bank account opened by the Office of Public Works by vote of the Department of the Taoiseach on December 28th, 2000.

This money was intended to be used to purchase the Guinness Hopstore building. But, according to the documentation, the Department of Finance objected strongly to the circumstances surrounding this, insisting it had not sanctioned it and was not aware of it.

In a letter dated March 8th, 2001 sent to Mr Dermot McCarthy, secretary general of the Department of the Taoiseach and the OPW, Mr Dermot Quigley, Principal Officer at the Department of Finance, wrote: "It appears that the public financial procedures, which require that payments are only made in respect of matured liabilities, may not have been observed fully in this instance."

This money has since been withdrawn from this escrow account by the Department for Finance and the sale was put on hold pending a full review of the digital village strategy.

Indeed, in earlier correspondence, the Department of Finance called into question the whole approach to the project set out by the Board of Digital Media Development.

In a letter to Mr McCarthy, Finance second Secretary, Mr RJ Curran, described the plan as "not a satisfactory one". He questioned whether it matched the policy background in the Government's original decision, a lack of consultation with other Government departments and the failure to propose legislation to govern Digital Media Development Ltd.

Finance also objected to the proposed method for remunerating the executive Services Team appointed after public tender.