Sheffield Arena was built with funds from Sheffield City Council
MPs in South Yorkshire have objected to the use of government money to pay for a new multi-million pound rival arena in Leeds.
They have said the development would threaten the future of Sheffield Arena and would lead to job losses.
Regional development agency Yorkshire Forward has backed the Leeds arena but cannot confirm its level of funding.
MPs Clive Betts, David Blunkett and Angela Smith have said the agency's support was inappropriate.
A site near the Merrion Centre has been chosen for the Ł30m development, which will open in 2012.
The MPs' concerns are echoed by Sheffield International Venues (SIV), the group behind Sheffield Arena.
Chief executive of SIV Steve Bailey said: "An arena in Leeds will seriously damage our business in Sheffield and it will cause job losses.
"I could understand Leeds residents and the council wanting their own arena and if they decide to use council funds in this way Sheffield would have to accept it.
"But we object if Yorkshire Forward is helping to fund the project.
"They should not be funding an investment in one part of our region that will seriously damage an existing venue."
A spokesperson for Yorkshire Forward said: "The arena scheme is subject to further design and development work, therefore Yorkshire Forward cannot confirm the level of support. We are hoping the position will become clear early in the New Year.
"Yorkshire Forward has given consideration to the effect Leeds arena will have on Sheffield and our basis for support is we have concluded that it will benefit the region as a whole, as it will support the growth of Leeds and compliment the city and the region's cultural offering."