A unique regeneration project for Brighton and Hove, designed to create hundreds of jobs, has been halted by a legal hitch.

The Brighton and Hove City Mutual Project was launched last year and was due to get under way soon.

Residents and organisations could have invested between £10 and £10,000 and their money would be used to redevelop derelict sites and create business parks and new homes.

This would have created jobs and given investors a competitive return.

But now the city council, which owns the majority of sites to be redeveloped, has been advised by lawyers to pull out of the non-profit making project.

Lawyers say the council cannot be seen to support a financial project such as the mutual and it also has a duty to get best value out of any site it sells.

It is now unclear whether the scheme can be revived by the remaining partners: The Family Assurance Friendly Society, based in Brighton; the Regeneration Partnership; the South-East England Development Agency (Seeda) and New Deal in the Communities.

Council chief executive David Panter said: "We are keen to support the City Mutual concept. We like the idea of a local vehicle for people to invest in."

But he said the authority had to act legitimately and did not want to undermine any development in the city by acting improperly.

Family Assurance chief executive John Reeve said: "We are obviously disappointed."

But Mr Reeve said he and others were still anxious to see the project work.

One possibility would be to use sites provided by Seeda.