Adam Smith College will have to repay #163;5.5 million of European funding it received, following an investigation into possible misuse of the money, the government has said.
"We have begun proceedings to recover all of the #163;5.5 million already paid to Adam Smith College from European structural funds," a government spokesman told TESS.
But interim principal, Martin McGuire, said talks were continuing and the college would seek to "rapidly agree a final figure to be repaid".
There was still a chance for the college to put a proposal together for the retention of some of its projects funded through ESF, he said.
"Adam Smith College has been made aware by the European structural funds division of the Scottish government that the managing authority will consider any proposal to retain elements of the projects that can be supported," said Mr McGuire.
Fife Constabulary said last month it was investigating "allegations about funding" at the Fife institution.