The decision was announced by the National Secretariat of Sports, which said the Government would reallocate the money to the $60 million (£48.4 million/€53.8 million) construction of the Hospital of Barrio Obrero in the capital city.

Paraguay Sports Minister Fatima Morales told newspaper Última Hora that the spike in costs required to stage the multi-sport event in Asunción was also a factor in the country pulling out as hosts.

Morales claimed costs had risen from around $31 million (£25 million/€27.8 million) to around $160 million (£129.2 million/€143 million).

It means the South American Sports Organization (ODESUR), led by Paraguay Olympic Committee (COP) President Camilo Pérez López, will be forced to find a new location for the Games.

López, who became a member of the International Olympic Committee last year, told Última Hora he was "devastated" by the decision.

"I am surprised and very sad," he said.

"It is a day of mourning for Paraguayan sport."

In a statement posted on López's Twitter feed, the COP said it was "impossible to face the organisation of the Games" without Government support.

Asunción was awarded the 12th edition of the South American Games in December 2017 as the city was the only candidate.

Officials from the capital received the South American Games flag at the Closing Ceremony of last year's event in Cochabamba.

Over 4,000 athletes competed across 373 events at the event in the Bolivian city.

The 2022 event would have been the first major regional Games to take place in Asunción.