Salford City Council has been unable to agree a £750,000 rescue package for Salford City Reds.
After a six-hour meeting, councillors decided that lending the club so much money could not be justified in the current financial climate.
Salford council needs to save £25m next year but had planned to share a £1.5m bailout with Peel Holdings for the Super League club, which was served with a winding-up petition in October due to unpaid bills.
Mayor Ian Stewart, who did not take part in the vote, said councillors had taken the decision with a 'heavy heart'.
He told the Manchester Evening News: "Times are tough and in many ways, the Reds are yet another victim of the recession.
"We would have loved to try and help them out, but given the spending cuts the city council is already facing, that proved impossible.
"The Reds have had a long and proud history in Salford over the last 116 years, but they are now victims of cash flow problems and the current economic climate.
"The city council's ability to support the club financially is now at an end, and it is for the club's existing Board to decide the future of the Reds.
"Whilst we can no longer help financially, we will do everything in our power to support the club and would urge any single investor or group of investors who are interested in a take-over to act extremely quickly before the Club Board of Directors make a final decision on the future of Salford City Reds."