The former paddle steamer was dubbed the Heroine of Dunkirk after taking part in the evacuation of Dunkirk as part of the Dunkirk Little Ships flotilla.
She was built in the 1920s for service between the Medway Towns and Southend-on-Sea.
She is currently being restored in Bristol and it was hoped that she would become a tourist attraction in Gillingham.
Half of the cost of the re-build programme is being funded by the European Union.
But it's emerged today that the funding for the project has now been stopped.
It's believed that the European Commission has imposed a blanket suspension of this type of funding across the UK, concerned about potential “irregularities”.
The Medway Queen Preservation Society says it still has not received its funding for the first half of 2011 and that if the situation is not resolved by next month the project will have to be halted.
The project employs 16 people including nine apprentices.
Kent Euro MP Peter Skinner has teamed up with project manager Bob Stokes to campaign for resumption of the funding and has taken the fight to Brussels and Westminster, personally calling on UK Ministers and European Commissioner Johannes Hahn to step in.
Mr Skinner said: “The Medway Queen project is a fantastic scheme. Safeguarding a unique piece of our history and creating jobs. Young people face huge challenges in the employment market but the Medway Queen has taken on local young people and is giving them practical work skills through apprenticeships.
“Through no fault of theirs funding has been suspended. That can’t be right. I’ve been pushing Ministers; they need to find a solution. I have also demanded a meeting with the Commissioner. I want him on the case. The project is a great opportunity for the apprentices and they shouldn’t be in danger of losing out because of some bureaucratic foul up."
Bob Stokes, Project Manager added: “Unless we find funding from somewhere the project will have to close and that will be a disaster all round, but mainly for the young people involved. I thought providing young people with Apprenticeships and training opportunities was a priority for both local and national government."