There was fury from National Lottery distributors, who will have to contribute £675m - on top of their initial £1.5bn commitment - towards the cost of the Olympics, and a warning that an enduring sporting legacy from the games will be endangered by a £223m reduction in funding for grassroots sport.

Arts and heritage organisations also expressed disappointment, while opposition MPs sought assurances there would be no further raids on the lottery.

The government said the Olympic Delivery Authority's budget for building the Olympic park would be £5.3bn, compared with the original public sector funding package of £3.4bn - but the overall cost of the project has soared, mainly because of an £840m tax bill, contingency funding of £2.7bn and a revised security bill of £600m.

Tessa Jowell, the Olympics minister, accused opposition parties of not supporting the games and indulging in Victor Meldrew-style pessimism, and of "voting for Paris" as they criticised the size of the revised budget.

"We should see this as an investment not a cost," she told the Guardian. "It is a toxic, difficult, contaminated site in the East End of London. It is a fantastic thing - we have the Olympics pouring in millions of pounds into this area."

She rejected criticism from lottery distributors, saying the games were "the best catalyst for the galvanising the participation of young people in sport."

After weeks of negotiations with the Treasury, the chancellor, Gordon Brown, has agreed that central government will contribute £6bn, an increase of nearly £5bn on the previous commitment to regeneration of the Lower Lea Valley.

The larger than expected Treasury contribution is likely to restrict Mr Brown's room for manoeuvre in the forthcoming comprehensive spending review.

Ken Livingstone, the mayor of London, has pledged an extra £300m, without further rises for the capital's council tax payers or increased transport fares.

Hugh Robertson, the shadow Olympics minister accused the government of "massive financial incompetence" and said the two largest over-runs on VAT and contingency had been predictable at the time of the bid.

"In raiding the lottery for a further £675m to make up the shortfall, the government will penalise the clubs and small organisations up and down the country that were supposed to benefit."

Nigel Evans, a Conservative member of the culture, media and sport select committee, said the Olympic rings were "hanging like a noose over future generations".

The most outspoken criticism came from Derek Mapp, the chair of Sport England. He said the diversion of £55.9m of Sport England's income was "a cut too far and seriously endangers the creation of a sporting legacy from the 2012 games. The true loss, he said, would be £223m because almost £3 is levered in for every £1 invested.

He said that in the best case scenario 186,000 fewer people would be taking part in sport. "Grassroots sport has benefits of reducing obesity and crime and the government spends £8.2bn a year because we are an unfit nation. We are the biggest tool to make a change, yet we are being cut," Mr Mapp said.

The Arts Council is to seek an urgent meeting with the Treasury after learning that its contribution towards the games has risen from £49.6m to £112.5m. Peter Hewitt, its chief executive, said: "The impact is likely to be felt across the whole of England and disproportionately by smaller arts organisations, local projects and individual artists."

Dame Liz Forgan, chair of the Heritage Lottery Fund, which will lose £90m, said: "This will impact on our ability to invest in the nation's heritage at exactly the time it is being showcased to the world in 2012."

Lord Coe, chair of London 2012, said the games would transform he East End, bringing thousands of new homes and jobs. "We must make the most of this opportunity for the benefit of future generations," he said.

Growing cost

In 2005 the public sector funding package totalled £3.4bn

£1.5bn from national lottery (£750m from games and draws; £340m from sports lottery; £410m from arts, national heritage and Big Lottery Fund good causes

£625m from London mayor

£250m from London Development Agency

£1bn from the Treasury

In 2007 the revised budget total stands at £9.3bn

£5.3m for the Olympic Delivery Authority

£2.2bn programme contingency

£840m for tax and VAT

£600m for security

£390m invested in training elite athletes and costs of Paralympics

How it will be funded

£6bn from Treasury

£675m extra from lottery, including funds from Sport England, Arts Council England, Heritage Lottery Fund Big Lottery Fund.

£300m extra from London mayor