The price of staging the 2010 World Cup in South Africa could cost 20% more than originally estimated.
The 2010 World Cup will be the first held in Africa
The South African government said that US$500m more will be needed to host the tournament than originally thought.
"Current projections suggest we might be facing an escalation of cost," deputy finance minister Jabu Moleketi announced in Pretoria.
Moleketi said the government would work out how to finance the shortfall after a detailed cost calculation next month.
"We have dispatched all our technical teams to look into the projected escalation and put in extra capacity to interrogate on the spot the nature of the problem," he added.
The government has so far made available a budget of US$2.5 billion for the World Cup.
Moleketi blamed a rise in steel prices for the escalation in costs.
"The price structures are changing every day because of intense demand of the materials," said the minister.
Moleketi was still confident however, that preparations are still on schedule and said this weekend's preliminary draw in Durban would illustrate the country's organisational skills.
"The 2010 government World Cup unit is convinced that the implementation of all plans are still on target and within (our) timelines," he said.
"The preliminary draw in Durban will demonstrate our ability not only to host the tournament in 2010, but our organisational capacity to host such events.
"It will demonstrate that it is indeed Africa's time and the continent is ready."