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The council applied to the National Lottery Heritage Fund in August for a £250,000 grant to help preserve the nationally significant Iron Age hillfort.
The lottery fund have turned down the bid saying they were oversubscribed with applications and that other projects fitted their objectives more closely.
"Not getting the lottery money is a huge disappointment to all those involved in the hillfort project, especially the volunteers of the Worlebury Hillfort Group and other local community groups, because it makes it harder for us to protect and preserve this scheduled monument," said Cllr Mike Solomon, the council's executive member for neighbourhoods and community services.
"The hillfort still remains at risk so our plans have not changed, but this does mean that we must review our timetable and activities associated with the project.
"Since we started looking at this project ash dieback disease has spread across the country, including the whole of North Somerset, and is affecting many trees on the hillfort. We therefore need to address this problem by removing the diseased trees and we are currently preparing a works programme to do this.
"We will also be revising our lottery application to have a second attempt next year."
Cllr John Crockford-Hawley, the council's heritage and regeneration champion, said: “Preserving archaeological sites such as Worlebury Camp hillfort is a really difficult activity. We have been helped by the efforts of our determined volunteers, but we need additional funds to put measures in place to protect the archaeology, as well as making the site more accessible for visitors and linking it closer to the town.
"We are therefore determined to make another application to the lottery so we can ensure this valuable piece of our collective history can be preserved for future generations to explore and enjoy.”
More information about the Worlebury Camp hillfort project can be found at www.n-somerset.gov.uk/hillfort and about ash dieback at www.n-somerset.gov.uk/ashdieback.