The Scottish Government has warned that it may withhold £60 million of funding following the decision by Edinburgh city councillors to halt the capital’s trams project at Haymarket.

The future of the project will be discussed again at a special meeting at the end of this week, according to reports.

Conservative and Labour councillors had overruled the Liberal Democrats, who supported the development of the tram, by voting to restrict the new service after the latest estimate of the cost had reached £1 billion.

Counsellors expected to reduce costs by £231 million if they terminated the section between Haymarket and St Andrew Square.

This controversial decision caused anger in parts of the city, which had remained closed for a year to allow new tramlines to be laid.

First minister Alex Salmond, has now revealed that the government was preparing to withhold £60 million if trams terminate at Haymarket.