A unique 12-year study into the links between childhood obesity and diabetes is in jeopardy because the Department of Health is declining to provide funding. The EarlyBird study at the Peninsula Medical School in Plymouth will lay off staff at the end of this month after the government withdrew £40,000 of £90,000 it was understood to have pledged.

The doctor leading the study, Terry Wilkin, fears it may ultimately fold since the Department of Health has said it has no intention of funding further work in this field. That would mean the closure of the only study in the world to take annual blood tests from children from the age of five and so chart the link between weight and metabolic changes.

The decision comes despite the government emphasising the need to tackle childhood obesity, in part to prevent diabetes, which consumes 10% of the NHS budget and can lower life expectancy by 20 years.

A key aim of the 2004 public health white paper was "to halt, by 2010 the year-on-year increase in obesity in children under 11". Initiatives have included giving children pedometers and banning junk food in schools.

In June, Tony Blair spoke of the need to prevent diabetes through diet and exercise. "Ten per cent of NHS resources are used to treat diabetes," he said . "By 2010 the estimate is that this could double. That is 20% of the entire resources of the NHS - and it's avoidable."

Prof Wilkin, professor of epidemiology and metabolism, said: "There is a gap between government rhetoric on childhood obesity and its preparedness to fund the research that it has so often been advised it needs - and EarlyBird has fallen foul of it. There has been very powerful rhetoric about the problem of childhood diabetes but no funding to undertake the research to provide the government with the information on which to act."

The EarlyBird study, which has been running for six years, is analysing 300 healthy children to determine what causes some to develop the condition. Health MoTs are conducted every six months, with participants undergoing blood tests which provide markers of metabolic disturbance. They also have their size, waist circumference and body mass index calculated, and spend a week wearing accelerometers - electronic boxes which record levels of physical activity 600 times a minute.

The study, which costs £238,000 a year to run, has produced 34 medical papers. A philanthropist has offered to provide £100,000 a year in funding for six years, but only if the sum is matched by the Department of Health. However, the DoH has said it will not be commissioning further work in this field.

Prof Wilkin said: "The DoH withdrew £40,000 of a promised £90,000 this [June], leaving the study with a substantial deficit. I don't want to shame the Department of Health ... but this is very disappointing and it raises alarm bells about what might happen for the future. The medical school has absorbed the shortfall this year, but there is a concern about what will happen in the next six years."

Alison Seabeck, Labour MP for Plymouth Devonport, has written twice to the public health minister, Andy Burnham, and raised the issue in the Commons, telling MPs: "It would be catastrophic if this study ... were stopped at this juncture because of lack of funding."

She told the Guardian: "The question is whether any research is being undertaken that is as in-depth. I suspect the answer's no, and if so the government does need to fund this fascinating research."

The Department of Health said it was researching child health in general.

A spokesman added: "When EarlyBird applied to the Department of Health for this one-off payment in March 2006, we offered them £50,000 to assist in their research. There has never been a long-term DoH commitment to fund the study."