Newcastle council will relinquish its trusteeship of the Newcastle Maritime Museum Society collection after the group's members sought more time to find a new home.
A meeting of 34 society members on Monday night resolved unanimously to "continue negotiations and explore all options" for the 7500-piece collection.
The members voted to meet in six months to "report on the progress of these negotiations".
But City of Newcastle chief executive Jeremy Bath said the society's time was up and the council would "retire" its trusteeship of the collection.
"City of Newcastle agreed at the request of the Maritime Museum 15 months ago to take on the collection," he said in a statement on Tuesday.
"It's now clear the new Committee for the Maritime Museum do not wish to head down that path.
"City of Newcastle will write to the Newcastle Maritime Museum Society formally removing itself as trustee.
"Further we will again make clear that, given 15 months of waiting for promises to be honoured have now passed, we will not engage in further discussions."
Mr Bath gave the society a three-week ultimatum early this month to either donate the collection to the council for display in Newcastle Museum or resume full control of the items.
He said on Tuesday that the society's vote left him with no option but to hand back the collection.
The council has been storing the items in a warehouse at Carrington since the museum folded in May 2018 with a six-figure debt.
The peppercorn lease on the storage runs out in September next year.
Mr Bath said three weeks ago that the council's museum staff needed at least a year to plan what would happen to the collection once it came out of storage.
Museum society president Bob Cook said on Tuesday that members were "not impressed by the fabricated pressure" applied by Mr Bath to resolve the matter quickly.
"Members of NMMS are committed to working with CN and have asked for co-operation from Council to assist the Society to find a better solution during the remaining 13 months of the storage facility at Carrington," he said in a statement.
Mr Cook believes the maritime collection deserves more prominence than to be displayed in Newcastle Museum.
The society has proposed exhibiting it in a maritime-themed luxury hotel on the site of Queens Wharf, though there is no formal proposal to redevelop that part of the waterfront.
"We are asking Council to apply its role of 'working with the community it serves', to help us find a way to achieve something more valuable from our rich maritime heritage," Mr Cook said on Tuesday.
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