The Environment Agency say that all the partners in the project are "working very hard" to bridge the gap in the complex scheme to defend Tenbury Wells and have applied for "additional sources of funding which could satisfy this demand".
In an update to residents, an EA spokesman said: "We will continue to explore opportunities to reduce capital costs and increase benefits through partnership working, design modification and value engineering to achieve a viable scheme."
The Tenbury Wells Flood Risk Management Scheme aims to reduce the risk of flooding from the River Teme and Kyre Brook.
The proposed scheme is estimated to provide increased river flood protection to 120 residential properties and 145 commercial properties in Tenbury Wells.
In a newsletter to residents the team behind the project say they continue to look at ways in which "we can find additional benefits through re-evaluating the flood model for the scheme. This approach looks to increase the viability of the scheme."
They say they are also continuing to talk to Hereford Anglican Church concerning the scheme's design around the church and the churchyard. There are also other heritage sensitive areas of the scheme, which they say continues to be addressed.
The EA says increasing costs are due to more than expected engineering constraints, unforeseen changes in design, and industry wide increases in material costs. This has led to cost increases and programme delays of several months.
They add: "We are moving forward with the internal approval of the scheme, and we expect this to be determined in the coming months. Then we will move to the next more detailed stage.
"This timeframe will depend on a variety of factors, including securing funding shortfall, obtaining necessary approvals and any unforeseen engineering challenges on site."
Tenbury has suffered from extensive flooding to large parts of the town on a number of occasions, most recently in November 2019 and in February 2020, when levels were just below those which occurred in 2007.
The team say they are making good progress towards starting construction in 2023.