Controversial plans for a new outpost of the Guggenheim museum in Helsinki have been rejected by city councillors following a five-hour debate.

City councillors voted 53 to 32 against funding the Moreau Kusunoki Architectes-designed Guggengeim Helsinki during a meeting earlier today.

The Finnish government was expected to contribute €40 million (£33.5 million) towards the construction costs of the museum, which were first estimated at €130 million (£109 million) but had reportedly risen to €150 (£126 million).

The museum's backer, the Solomon R Guggenheim Foundation, has proposed no other funding plans for the project.

"We are disappointed that the Helsinki City Council has decided not to allocate funds for the proposed Guggenheim Helsinki museum, in effect bringing this project to a close," said the foundation's director Richard Armstrong in a statement.

"We are immensely proud of our efforts for the Guggenheim Helsinki, including the many relationships we forged at home and abroad and the open international architectural competition we organised – the largest ever conducted – which contributed greatly to the conversation about the role of museums in the 21st century and the future of Helsinki’s waterfront."

The decision follows earlier calls to scrap the project from the country's nationalist Finns Party, which forms part of the country's coalition government, alongside the Centre Party and the National Coalition Party.

"This is the end of the matter, we have ruled out state funding [for Guggenheim] once and for all, for this government," parliamentary head of the Finns party Sampo Terho told Reuters at the time.

"We are not opposed to the project as such, we just don't think it is something that the state should participate in."

Parisian practice Moreau Kusunoki Architectes won the contest to design the new major outpost for the American arts institution in 2015, beating 1,700 other proposals.

The design comprises a sequence of charred timber pavilions with concave roofs and a tower with the appearance of a lighthouse, which would give visitors views out over Helsinki's waterfront.

The Guggenheim Helsinki was expected to follow in the footsteps of Frank Gehry's Guggenheim in Bilbao, attracting art tourists to the city and subsequently generating a significant amount of revenue.

The Guggenheim's attempts to expand its European empire follows a trend of major museums opening foreign outposts. The V&A is opening new buildings in east London and Dundee, while the Louvre opened a new building in Lens in 2012 and has a new building underway in Abu Dhabi.