A "death zone" at Eastbourne in which hundreds of coastal homes are being built and many more are planned will no longer be protected from the sea by the Environment Agency, the organisation has warned.
The agency said it was forced into the warning by an imminent planning application by Beazer Homes, which wants to build many more houses in the most vulnerable area at the biggest marina complex in Europe.
It said the land owners, Sovereign Harbour, had failed to honour a 1988 agreement to bolster the sea defences in the area and the agency was not prepared to step in with taxpayers money.
Already nearly one third of 3,000 planned homes at the Sovereign Harbour development are occupied by people who have no idea of the serious danger the agency says they are in. They each pay the property company £125 a year towards the cost of the sea defences.
Ray Kemp, a spokesman for the agency, said: "Our engineers call the area where Beazer Homes want to build the 'death zone'.
"They believe that in the next big storm - like the one that hit France at Christmas - houses in this area will be washed away like matchsticks."
Carillion, formerly the Tarmac company, the owners of Sovereign Harbour, said it was in dispute with the Environment Agency over the 1988 agreement which, in its view, made the agency responsible for maintaining the foreshore.
"The agency cannot legally or morally dissociate itself from the agreement," a spokesman for the company said.
The area to the north of Eastbourne has been ear marked for a prestige development surrounding the marina and yachting club.
It was the building of the harbour which caused part of the problem because the shingle piles up on the west side. It then has to be regularly shifted to the east side to prevent the sea breaching the defences.
Beazer Homes said last night it was "surprised" about the warning the agency had issued and would be investigating before it decided to go ahead with construction plans.
Ian Hayes, development manager for Eastbourne council, said: "The agency has been raising objections to further development in this area for some time but we are powerless to prevent it." He said outline planning permission was given on the Beazer Homes site in 1997 "so we cannot stop it".
The problem for potential house buyers was that the lack of sea defences does not show on a solicitor's search, he said.
Roger Wesson, one of the first residents in the area in 1992, said: "We have been sent packs about what to do in the event of a flood, and we have had warnings, but nothing has happened.
"I have no idea how serious the situation is. We pay £120 a year for the flood defences and I would like to know what they do with the money. No accounts are published."
Peter Midgley, the Environment Agency's Sussex area manager, said: "It is wrong to expect taxpayers to subsidise works to the defences to protect the new development."
He said the company should use the money collected from householders to fund the defences. If it was a new greenfield site, he said, the agency would object to any development, "but decisions taken many years ago had left the agency and the local community in a difficult position".
The harbour company has accused the agency of issuing misleading statements and hindering its attempts to protect householders. It said Sovereign Harbour was working on the sea defences using the money it collected from householders.
"The protection for the local community has been provided by the developers - and is neither paid for, nor subsidised by, taxpayers," a spokesman said.
He added that Sovereign Harbour was prepared to reopen talks with the agency
to try and resolve the problem.