A row over funding has broken out over planned new services for the Children's Hospital for Wales in Cardiff.
Catherine Zeta Jones opened the hospital's first phase in 2006
Cardiff Local Health Board (LHB) has announced it cannot afford its £1.1m share of expected annual running costs.
The Noah's Ark Appeal, which has raised £10m for the hospital, said the LHB's decision was the "worst we had feared".
The board said it still wanted to see the second phase of the hospital built and has called for talks with its other main funding partners.
The Noah's Ark Appeal had earlier voiced its "disgust" at the expected decision and accused the LHB of "ignoring the strong wishes of the public".
The first phase of the project included two 25-bed medical wards and one 16-bed paediatric cancer ward.
The planned second phase is to house an intensive care unit, operating theatres and surgical wards.
But at a meeting on Wednesday, the Cardiff LHB said it was unconvinced the proposal would meet the future needs of medical care for children, particularly the provision for outpatients and for care once youngsters are fit to be discharged.
However, the board said it still wanted to see the second phase to go ahead.
It has now called for talks with the other three main funding partners - Health Commission Wales, and LHBs in the Vale of Glamorgan and Caerphilly.
In an open letter to the LHB before it met, Lyn Jones, chairman of the Noah's Ark Appeal trustees, expressed the group's "disgust" about "the low priority status" the board was giving the hospital.
"The board acts as a guardian of public funds, and yet talk of the children's hospital not being a priority for investment, indicates an arrogant board that does not intend to carry out the wishes of the public that it serves," wrote Mr Jones.
'Challenging financial climate'
"The people of Wales in supporting the Noah's Ark Appeal have strongly demonstrated that they wish to see a children's hospital - a purpose-built, world-class, child-friendly facility - a far cry, as you will know from the state of the surgical wards in which many thousands of the children that you will affect, have to put up with.
Cardiff LHB says it cannot afford the hospital's extra costs
"I cannot believe that your board regards the ill-health and treatment of sick children not to be a priority."
Mr Jones added that while he appreciated the difficulties facing the LHB, the funding was "absolutely crucial to sick children".
An LHB spokesman said before the meeting: "In the present very challenging financial climate faced by the LHB, the extra costs of the current plans cannot take priority over other essential services."
Jenny Randerson, AM for Cardiff Central and the Liberal Democrat spokeswoman for health, called for the Health Minister Edwina Hart to take a "strategic lead".
She said: "We've gone so far, we look plainly foolish that we can't actually put this second phase into practice.
"It is a tragedy for the children concerned."