Officials at North Tyneside Council had been looking to include a 'quality' hotel as part of the regeneration on part of the Spanish City site.

After putting the site and plans on the market for a second occasion, eight expressions of interest were received with three companies being shortlisted.

But at a full council meeting last week, Coun Ray Glindon, cabinet member for investment and regeneration, said the preferred developer – chosen to negotiate detailed terms and conditions – had "very recently" withdrawn its interest.

He added: "Consequently, officers are considering remarketing the site."

Responding to a question, Coun Glindon said he did not know whether it would still be a 'quality' hotel.

Coun Glindon added that plans for a new Joint Service Centre on the site of the current library, to include the facility, were currently on display with a planning application due in the summer.

If the application is approved, then work could start next year and the centre would be open for 2010.

Coun Glindon said new libraries of similar design in Shiremoor and Dudley had seen visitor numbers rise by 165 per cent (Shiremoor) and 203 per cent (Dudley) and he hoped the same would happen when Whitley Bay's new library opened.

Work is also expected to begin on the first houses within the regeneration proposals, to be built at Marine Gardens.

A total of £22.3m of council and public sector money is being spent on the overall regeneration project, with £46m of private sector investment.

Coun Glindon added that work to strip out the modern fittings and demolish the modern extensions to the back of the Dome was underway, and to agree with English Heritage the details of the reinstatement works, including the shop fronts.