Manchester is threatening to take the Government to court over Gordon Brown's decision to scrap a supercasino promised to the city, it has emerged.

Creating a supercasino in a run-down area of east Manchester was expected to generate £265m investment and the creation of 2,700 direct and indirect jobs – primarily in hospitality. 

The complex would have housed a hotel, restaurants, bars, a nightclub, and an entertainment arena.

But, in one of his first high-profile decisions as prime minister this summer, Brown announced a u-turn on the proposals, leaving hospitality operators in limbo.

Legal advisers have now told the city council that it has strong grounds to seek a judicial review of the prime minister's U-turn over the gambling act, according to the Financial Times.

Sir Howard Bernstein, the council's chief executive, said: "We will look very carefully at how we protect our interests. I wouldn't rule out legal action."

Ministers discussed with the council whether it would accept one of the eight large casinos permitted by the new gambling act as a consolation prize for being denied the super-casino. But Bernstein said this would generate fewer than 500 jobs.

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By Daniel Thomas