The Arts Council had been providing £520,000 a year towards The Public
The National Audit Office should step in to examine a £60m controversial arts complex, the shadow arts minister said.
The Arts Council said this week it would pull some funding for The Public, which partially opened last year - two years late and nearly £15m over budget.
The main feature of the West Bromwich complex, an interactive gallery, has still not opened.
The call came as The University of Wolverhampton said it was in talks to use more of the space in The Public.
The university already uses a section of the building and said it now wanted to use more to to help people start up new businesses.
It confirmed it was talking to Sandwell Council over the plans.
Shadow minister Ed Vaizey said: "The most important lesson an audit office inquiry could bring is at what point the taps should have been turned off."
Mr Vaizey described it as the "biggest arts scandal for decades" and thought West Bromwich residents had been "very badly let down".
The Arts Council said on Wednesday it was unable to give the extra £500,000 a year Sandwell Council said was needed to keep The Public running.
However, it said it would be giving the council a one-off £3m grant to try to open the whole arts complex to the public.
The Arts Council has previously provided £520,000 a year.
Mr Vaizey described the scheme as "over-complicated, over-ambitious and badly executed".
He said: "Sixty million pounds of public money has gone in to it, lottery money, and we know lottery money is scarce at the moment.
"And now the Arts Council is proposing to put an extra £3m into a building that isn't even (fully) opened to the public.
"Where a scandal like this happens, something like The Public, it gives all arts organisations a bad name.
"It reinforces the impression that some people have that arts organisations are feather-bedded and fluffy organisations who can't run a tea party."
Sandwell Council's cabinet has already agreed to find an extra £1m of funding over the next year to help the project.
The Public went into administration in 2006, when it was being run by a private company, before effectively being saved by a £1.6m grant.
It opened in June and attracted criticism over plans to charge people £6.95 to enter the interactive gallery.