Bristol Old Vic has been living on "borrowed time" for several years, the theatre has said.
The theatre will reopen in 2008
In a statement responding to speculation about its planned temporary closure, a spokeswoman said the theatre was in desperate need of refurbishment.
And its finances were at the "brink of failure", following overspending on some productions, she added.
This meant trustees could not be confident that the planned programme for autumn/winter would be affordable.
The £7m revamp will begin in August, with the theatre to be shut until December 2008.
The closure has been criticised by one of the theatre's former artistic directors and two theatre companies.
The spokeswoman said: "The harsh truth is that Bristol Old Vic has been living on borrowed time for several years, largely due to the limitations of our beautiful but flawed Georgian auditorium and its 450 usable seats.
"Two main problems came to light over recent months: the building was in desperate need of refurbishment, especially the extremely uncomfortable seating, and although largely critically successful, the shows were not reaching box office targets.
"The continued collapse in ticket sales for the spring/summer season, confirmed our fear that the work on stage needed to be reviewed."