A key link in the effort to remake the area around Ashmont Station suffered a significant setback last week, as state officials announced they would not deliver an integral piece of financing.

While the Massachusetts Bay Transportation Authority said the indefinite delay of the adjacent project won't impact their station renovations, neighbors and officials are worried that the state's decision not to furnish low-income housing tax credits for the mixed-use development could have deleterious effects on the Peabody Square area.

"There's a whole lot of people who spent a lot of time, a whole lot of people in the community who spent a lot of time, working on this project," said Vince Droser, project manager for Trinity Financial, the development firm seeking to construct the six-story, residential/retail building on a 30,000-square-foot parcel. "It's disappointing to them, and we're disappointed."

When Lt. Governor Kerry Healey announced last week the distribution of $75 million in state and federal tax credits for 16 proposals in 12 Bay State cities and towns, the Trinity development wasn't on the list. Ashmont activists who had been confident their design met the "transit-oriented development" goals of the Romney Administration were stunned.

"The state just basically reneged," said Christopher Stanley, co-chair of the Ashmont Station community design group and an architect in Cambridge. He called the Trinity plan "on life support."

What flawed the Trinity plan was their request for too many credits from the state, said Phil Hailer, a spokesman for the state's Department of Housing and Community Development.

"The other projects that we made the awards to around the state fill the same criteria," Hailer said Tuesday in a telephone interview. "Again it's a competitive situation … in which the strong survive. And obviously the strongest projects are going to get the funding."

Hailer said the state would cooperate with Trinity officials to try to smooth over their project's "deficiencies," and said a second round of credits for rental units would be announced in December or January.

"In theory, what they want to do at Ashmont is wonderful," Hailer said. "In reality, we have to make all the components work."

According to Droser, Trinity had been banking on $3.2 million in state housing tax credits, capital which would have generated $13 million in equity financing, sewing up the funding needed to break ground in July, purposefully timed to the beginning of the T's station rehaul.

"This is one of the last pieces we needed to fall into place," Droser said.

The T last week awarded its Ashmont contract to Barletta Heavy Division, the contractor handling the three other Dorchester stations. Local labor activists have ripped the Roslindale firm for not meetings its hiring quotas for women and minorities, but the T has said it is pleased with Barletta's work.

T designer Barbara Boylan said neither station work nor interim bus service would be impacted by the development parcel's uncertain fate, but said the T was disappointed the sister project wouldn't go forward right away.

"It won't diminish from what we are going to do, and I think the opportunity is still there for the transit-oriented development," Boylan said.

The station remodeling will last 31 months, T spokeswoman Lydia Rivera said, wrapping up in February 2008.

A revitalized Ashmont Station figures to be the epicenter of what neighbors hope will be a thorough modernization of Peabody Square. Combined with a City Hall effort to revitalize the length of Dorchester Avenue, and the opening next month of a "gentrified" Ashmont Grill, the $47 million Trinity building was slated to play a large role. With six stories aboveground and a parking garage below, the structure is planned to hold 105 rental residences and 20,000 square-feet of floor-level retail.

The Ashmont project in its totality lost two ardent and well-placed backers in the last several months, as both former Speaker of the House Thomas M. Finneran and former MBTA General Manager Michael Mulhern departed for the private sector.

But Ashmont activists said they thought the project's efforts to meet the administration's "smart growth" criteria would help guide it through the often-treacherous channels of state financing.

Droser said the Dorchester-based Trinity planned to stick with the lot. "We were dealt some disappointing news by the state, and we are evaluating that news and discussing our options for keeping the project going and moving forward with that," he said.

A new construction date wouldn't come to light, Droser said, until the firm could figure out how to convince the state to yield the necessary tax credits. Other sources familiar with the project said Trinity might have to find another investor.

"At this point, we've got to do our homework and get back to the drawing board and figure out what we've got to do to address whatever concerns the state had," Droser said.

He added, "In the end, there'll be something there. The station is going to get redone. There'll be a development there."