Wellington's SPCA's $9 million Pet Palace project appears to have stalled amid funding troubles, with the city council concerned about lack of progress after two years of planning.

The organisation's chairman has resigned, as a black cloud hangs over the future of the proposed Mt Victoria pet hospital. Sources close to the project say it is mired in deficit and in-fighting, and unlikely to go ahead.

Millions of dollars of ratepayer money has been spent on strengthening the former Chest Hospital building in Alexandra Rd to accommodate the planned animal shelter.

Wellington SPCA executive director Peter Mason said chairman Simon Meikle had resigned. He had been replaced by David Wright, who had taken over as executive chairman to oversee the transition of a new board at next month's annual general meeting.

The project would be discussed at the meeting.

Mr Mason confirmed that the board had commissioned a report to look at funding and personnel issues.

"This has identified a major reduction in income from bequests, and other extraordinary costs associated with the planned relocation from the current premises that has resulted in a loss for the current year.