Wales Rally GB, Britain's round of the World Rally Championship, is under threat.
The rally's long-time backer, the Welsh Assembly Government, has withdrawn funding for this year's event, which is due to be held in late October.
This is despite the Welsh Assembly announcing a five-year deal to back the event from 2007 to 2011.
As a result, International Motor Sports, which organises the rally, has begun legal proceedings against the Welsh Assembly for breach of contract.
Unconfirmed reports say that the early end to the funding was sparked because the Welsh Assembly needs funds to host the Ryder Cup golf tournament at Celtic Manor in October 2010.
Rally GB chief executive Andrew Coe said: "We are shocked and disappointed that the Welsh Assembly Government has taken this position, without any prior notice or discussions between us, particularly as there is a firm and binding contract in place until 2011."
A spokesman for the Welsh Assembly said: "It would be inappropriate to comment at this time."
It is not clear if the event could run in Wales without the Welsh Assembley's backing, or if the event organisers would consider moving the rally to a new location.
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