TV3 last night threatened to pull out of a controversial scheme which allocates licence fee revenue to the broadcasting industry after TG4 and RTÉ won the lion's share of the funding on offer.

The sound and vision scheme was created by the Government in 2002 following a review of the TV licence fee regime. The Government decided at that point to divert 5 per cent of the licence fee each year into a fund to support new programming by private and public sector broadcasters.

As part of this, some €10.5 million has been allocated to 37 TV projects. Eight RTÉ projects are to be funded, and 27 projects from TG4 will be funded, while privately-owned Setanta will have two projects funded. TV3, which submitted several proposals, will not receive any funding.

The allocation of the monies was undertaken by the Broadcasting Commission of Ireland (BCI). Yesterday it declined to comment on individual applications, but a statement said projects which failed to secure funding were refused for a variety of reasons. This included "lack of relevance to the programme themes, insufficient development and issues of quality".

According to documents released under the Freedom of Information Act, the decision to set up such a fund prompted concerns from the head of broadcasting policy in the Department of Communications.

The documents quoted the senior official warning Ministers that creating such a fund would fundamentally alter the broadcasting landscape in the Republic. RTÉ's then director-general, Bob Collins, was quoted as being alarmed and apprehensive about the idea.

Last night TV3 said: "The station had serious reservations about entering the scheme - its continuing involvement in light of this development is debatable." The station said it was surprised and concerned about the decision by the BCI.

"Of the €10.5 million of funds allocated to TV approximately 95 per cent was given to the State sector with the rest going to a small pay cable organisation received by less than 50 per cent of the population."