Plans for a super-casino in Manchester have been thrown into doubt after Prime Minister Gordon Brown announced a review of the government's policy.
Manchester put forward the winning bid for the UK's first super-casino
Whitehall sources told the BBC the idea of using a super-casino to regenerate run-down areas was "dead in the water".
The PM promised a report on the "social effects" of gambling by September.
But Manchester MP Graham Stringer said it would be a "weak and bad decision" if the city's successful bid to build the first super-casino was overturned.
During prime minister's questions, Mr Brown was told by Labour MP Andy Reed that most people thought super-casinos would make gambling addiction worse.
The prime minister replied the issue would be "subject to reflection over the next few months".
"In September we will have a report that will look at gambling in our country - the incidence and prevalence of it and the social effects of it," Mr Brown said.
"I hope that during these summer months we can look at whether regeneration in the areas for the super-casinos maybe a better way of meeting their economic and social needs than the creation of super-casinos."
The BBC understands the review will look at the "whole issue" of super-casinos, not just the controversial decision to award one to Manchester. It is thought the 16 smaller casinos will go ahead.
In January, Manchester was named the preferred site for such an attraction at the expense of Blackpool, whose supporters said it would benefit more.
Bath and North East Somerset
Dumfries and Galloway
But in March, peers rejected the plan by just three votes, after MPs had backed it by a majority of 24.
The policy had been backed by former prime minister Tony Blair, who said in May that he thought both Manchester and Blackpool should get super-casinos, if there was sufficient investment.
The BBC's political editor Nick Robinson said Mr Brown was effectively "tearing up one of Tony Blair's plans".
Mr Stringer told the BBC he had heard nothing about the review until prime minister's questions.
He said it would be "a weak and bad decision if it (the Manchester super casino) doesn't go ahead".
He told BBC Radio 4's World at One: "The idea that Manchester City Council haven't thought of all the possible ways to regenerate east Manchester is quite frankly insulting."
And Angie Robinson, of Manchester's chamber of commerce, told the BBC: "I think it will be devastating quite frankly. There's a huge amount of work and effort that has gone in, both by the public and the private sector, and all that will have been wasted."
Shadow culture secretary Jeremy Hunt said the move raised "serious questions" about Gordon Brown's credibility.
"We know how much influence Brown had under Tony Blair's government. Why didn't he say something then?" he said.
Liberal Democrat leader Sir Menzies Campbell said if any decision was to be taken "it obviously ought to have the fullest scrutiny of Parliament."