The Environment Agency has torn up a sea defence agreement with a firm, accusing it of putting the lives of hundreds of residents at risk.
The agency says Sovereign Harbour Ltd, Eastbourne, failed to provide adequate sea defences to protect buildings and residents at the site.
The firm pledged to carry out the work of transferring beach shingle to bolster wooden groynes in an agreement with the Environment Agency's predecessor, the Southern Water Authority, in 1988.
But says the Environment Agency: "Since the construction of the harbour in 1992 no shingle has been transferred.
"This has left the groynes exposed and vulnerable and has resulted in significant erosion of the defences and reduced the protection provided to the Sovereign Harbour area."
"In the light of this concern the Agency has had to accept that the aims of the agreement have not and cannot be met.
"As a consequence it has taken the difficult decision to publicly disassociate itself from the original agreement."
Plans were agreed earlier this year to build more than 150 additional homes on the site. The agency warned the harbour company they could be at risk of severe flooding and even destruction.
At a meeting of the Sussex Flood Defence Committee, members backed the agency's decision.The agency will press the firm to spend money from property charges on sea defences.
Committee member Roger Thomas said a large sum of money has already been paid by residents through property charges to ensure sea defence work is carried out.
He said: "What has this money been spent on, if it is not being used for sea defences?
Sovereign Harbour Ltd said the company has carried out considerable work bolstering sea defences.
A statement added: "The agency has attempted to hinder rather than help such activity."
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