A £2.7 million funding bid to the Heritage Lottery Fund (HLF) for a new Archive Centre was rejected.
HLF stated competition around the UK was the main contributory factor in the failed bid.
However the HLF said a revised project would be considered.
Alternative financing methods are now being explored for the facility, which will be based at The Ewart Library site in Dumfries.
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Councillor Tom McAughtrie said: "It is important that we have a modern facility to allow visitors to the centre access to state of the art search facilities.
"Our Council will be keeping the Archive Centre development work high on its agenda over the coming months and a report will come to Community and Customer Services committee in due course detailing our Council’s plans for the Archive Centre."
The building is set to hold over 6km of records, increasing public access to archives/local studies and will aid the regeneration of the town centre.
An HLF spokesperson said: "The Heritage Lottery Fund recognises the importance of the Dumfries and Galloway archive to the community.
"However, we were unable to provide a grant for this application because demands for funding were high and decisions had to be taken on more projects than the available budget could support."
(LM/MH)
