The result of more than a week of frantic negotiations aimed at saving the Bird in the Hand activity centre in Parchment Street mean the centre, which supports mentally-ill users, may have been thrown a lifeline.

Hampshire County Council social services manager, Graham Collingridge, confirmed that the Park Club, which runs a drop-in service for mental health service users, could carry on for a temporary period over Christmas with immediate effect.

The group, based in Sussex Street, has extended its hours to cater for Bird in Hand users and may offer temporary employment to some staff, until a permanent solution is found in the New Year.

Mr Collingridge said: "I can confirm that the Park Club will carry on in this interim period until we have established a brand-new service."

He also confirmed that a meeting with various agencies yesterday (Thursday) had resulted in a contract being offered to Solent MIND to develop a new service and take over the Bird in Hand activities in the New Year.

Winchester MP, Mark Oaten, who is keen to salvage the project, said: "I'm more optimistic that it can be kept going on a temporary basis and I'm encouraged that everyone involved seems to want to try to achieve this."

Ann Craig, chairman of Winchester Alliance for Mental Health, the charity which runs the service, said "I'm delighted, otherwise we wouldn't have had any care over the interim Christmas period."

The closure of the activity centre last week left vulnerable members shocked and upset. They were told that the charity running the service, WAMH, was going into liquidation and the Parchment Street centre they all rely on for support would close.

WAMH, which also runs the Byte Internet Caf, in Parchment Street, and Skillploy, in Fareham, owes hundreds of thousands of pounds. The shock announcement that it is closing has left 20 staff without jobs at Christmas.

Winchester City Council alone is owed £350,000. "For some years, the council has run the monthly payroll for WAMH with bills being sent in arrears to the company in accordance with our policy of providing payroll services to charitable organisations," said a council spokesman.

"WAMH have sometimes had difficulty in repaying the amounts each month, largely because of cash flow difficulties with European grant funding that is paid in large sums, but infrequently."

Asked why the debt had been allowed to continue, the spokesman said: "Members, through the central services performance improvement committee, the principal scrutiny committee and cabinet, have been kept informed of the position since the debt started," he added.

"They have been anxious to ensure continuation of this valuable service to vulnerable clients and have allowed time for WAMH to establish a sound financial base for its operations. The council had updates on business plans and funding, but sadly these have not been successful."

Mrs Craig said she couldn't comment on the size of the debt. "We are all devastated that this has happened. It is never easy for small charities and we felt we had to take the steps we have taken as we couldn't legally trade in an insolvent situation.

"What we are doing is working hard with social services and other providers to make arrangements for the clients. This is not something that anyone wanted but we had no choice," she added.

A full statement is expected from the charity after a meeting of creditors today (Friday).

Meanwhile it is the bewildered and shocked members who have borne the brunt of the uncertainty.

"We were told completely out of the blue that it is closing and there is a lot of strong feeling," said members' representative, Robert Stanbrook. "People are shocked and angry."

Mr Collingridge also confirmed that social services will be paying for a special Christmas lunch for members today (Friday) at the Saxon Suite at Winchester Guildhall, from 12noon-2pm.