An unmanned spaceship funded by Internet billionaire Jeff Bezos veered out of control and had to be destroyed during a recent test flight, highlighting the dramatic risks of private space ventures.

The spacecraft, developed by closely held Blue Origin LLC, was on a suborbital flight from the company's West Texas spaceport last week when it started to go off course and ground personnel lost normal contact with the vehicle. Investigators are looking at remnants of the craft recovered on the ground to determine the cause.

Happier Times:Jeff Bezos in 2006 celebrated a success in his space venture. Last week, a test flight careened out of control. Blue Origin

After The Wall Street Journal reported on the failure, Blue Origin Friday posted a brief note on its website stating the spacecraft, while going faster than the speed of sound, suffered a "flight instability" at an altitude of 45,000 feet and the company's automated "range safety system" shut off all thrust and led to its destruction. The problem appeared to stem from thrusters that didn't respond properly to the initial commands, according to one industry official.

The note, signed by Mr. Bezos, said it was "not the outcome any of us wanted," but "we're signed up for this to be hard."

The mishap, which industry officials said occurred Aug. 24, dealt a potentially major blow to the ambitions of Mr. Bezos, the founder and chief executive of Amazon.com Inc., AMZN 0.12% to develop a reliable system for blasting tourists and astronauts out of the atmosphere.

The failure also could set back White House plans to promote commercially developed spacecraft to transport crews to the international space station by the second half of this decade.

Championed by President Barack Obama's administration, the goal is to support a number of rival projects, including Blue Origin, to ensure that in the end the U.S. will have alternatives to reach the orbiting station, following July's permanent retirement of the National Aeronautics and Space Administration's space shuttle fleet.

NASA on Friday said its officials "have confidence in American industry to help our nation maintain its leadership in space and transport U.S. astronauts and their cargo" into orbit. The agency's "commercial space program will rely on multiple providers to ensure success," said David Weaver, NASA's top spokesman.

Mr. Bezos has been particularly secretive about Blue Origin's plans and details of its isolated spaceport, about 25 miles north of tiny Van Horn, Texas. The company Friday provided the first public glimpse of a squat, cigar-shaped rocketship with several thrusters at the bottom.

The vehicle, which was the one that failed in last week's test, takes off vertically and, unlike rival spacecraft, apparently is designed to land vertically using its thrusters. Mr. Bezos said the rocketship had a test flight three months ago and was traveling at Mach 1.2 just before last week's accident.

Blue Origin on Friday indicated it has at least one other vehicle to test its propulsion systems and is working on two different types of crew capsules.

The company had said it was targeting manned flights commencing as early as 2012. In the past, Blue Origin predicted that once commercial tourist flights begin, it could launch as often as once a week.

NASA in recent years has doled out hundreds of millions in seed money—including more than $25 million earmarked for Blue Origin—to promote development of various private rockets and spacecraft. They are intended to serve as the next generation of simpler, less-expensive vehicles to go back and forth to the space station.

According to NASA, the most recent award to Blue Origin is for work on a crew vehicle able to transfer up to seven astronauts to the orbiting station—first riding on top of a conventional Atlas V rocket and later powered by the company's reusable booster system intended to "dramatically lower the cost of space access." The federal money is targeted to speed development of a liquid-fueled engine, heat shields and a crew-escape system.

The latest event isn't expected to have a direct impact on Blue Origin's access to federal dollars, government officials said, because the test didn't rely on federal funds and wasn't part of the company's development agreement with NASA. It isn't clear whether Blue Origin hopes to use some of the same hardware in its official NASA-funded work and testing.

At this point, NASA hasn't asked for technical details of the mishap, according to people familiar with the matter.

The accident comes at a critical time for NASA, with lawmakers and the White House locked in an increasingly bitter debate over how much federal effort and funding should be invested in commercial space systems. A strong bipartisan group of lawmakers is balking at White House proposals to beef up NASA support for commercial crew taxis.

The debate over ensuring reliable follow-on systems to the space shuttles has intensified as a result of the recent failure of a Russian Soyuz cargo rocket to deliver goods to the space station. Unless Moscow's experts resolve the problem quickly and then verify the safety of Soyuz boosters by successfully sending a pair of unmanned missions to the station before mid-November, Russian and U.S. officials have said they may have to leave the orbiting laboratory temporarily without a full-time crew.

In an email message to NASA employees on Friday, agency chief Charles Bolden cited Blue Origin as one of NASA's four U.S. commercial partners developing "new capabilities to transport astronauts to and from" the station. "This is a crucial aspect of our future human spaceflight activities," he said, so NASA won't have to rely on international partners to reach the space station.

Blue Origin is one of three commercial space ventures backed by superrich entrepreneurs, which have become the most recognized international symbols of privately funded spacecraft. The other two are Sir Richard Branson's space-travel company Virgin Galactic and Elon Musk's Space Exploration Technologies Corp.

The trio of projects, all started within the past decade, roughly coincided with the success of SpaceShipOne, a rocketship designed by legendary aerospace engineer Burt Rutan, which won international acclaim as the first privately funded craft to reach space.

That prompted widespread predictions that space tourism, along with a host of other start-up companies seeking to operate at the edges of the atmosphere, would replicate the excitement and boisterous growth of the era that followed early exploits of the Wright Brothers.

Despite the deep pockets of their backers, all three projects have suffered substantial delays.

Virgin Galactic, which is using Mr. Rutan's rocketship design, originally suggested it could begin taking passengers up for thrill rides at the edge of space as early as 2008. Now, the company isn't expected to complete flight tests for at least another year, and it has stopped publicly predicting the start of regular service.

Peter Diamandis, who ran the international competition that awarded a $10-million prize for Mr. Rutan's pioneering flight, likes to say that in order "to have a really robust space industry," proponents need to find ways "to develop an actual mass market."

SpaceX, as Mr. Musk's company is known, is years behind in testing its Falcon 9 rocket and Dragon space capsule; the rocket, which operated well for most of its last demonstration flight, suffered a propulsion problem at the end. But if all goes well, the Hawthorne, Calif., start-up could initiate regular cargo deliveries to the station next year. SpaceX also is competing with Blue Origin and other rivals to get the nod for the next round of NASA funding for commercial crew vehicles.

Write to Andy Pasztor at andy.pasztor@wsj.com