The institute, which is a joint initiative between Otago Polytechnic and the University of Otago, aims to create a centre of excellence for design in Dunedin and was promised the suspensory loan by the previous government.
The loan was to fund the polytechnic's contribution to the construction of the design building on the former Wickliffe Press site in Albany St.
The University of Otago had put $6 million towards the project.
Institute general manager Alistair Regan said the project was now at risk, as the institute had been informed by the Government there were too many projects and not enough money.
"Without this funding, the building cannot go ahead," Mr Regan said.
The notice had meant plans for an international competition to design the facility had been put on hold.
It also meant existing design courses would have to continue across their 11 different sites, missing out on the synergies operating as one entity would provide, Mr Regan said.
He was calling on all the institute's supporters to prove to the Government how important the facility was to the community and industry, in an effort to get the loan approved.
"A call to action" email had been circulated, asking students, industry and other members of the community, to write a letter or email in support of the project to Prime Minister John Key and Finance Minister Bill English.
"We want to show there is resounding support for what we are asking."
The project would be positive for the region, providing jobs and boosting the economy, he said.
It had been shown around the world that investing in design increased profits and helped companies grow faster.
Support so far had been "fantastic", and he hoped it would prove Otago Polytechnic's claims to Mr Key and Mr English, he said.
The Tertiary Education Commission announced last month the process for allocating capital funding for tertiary education institutions was on hold while the new Government's tertiary education priorities were determined.
Until then, all Capital Fund applications were on hold.
