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The Welsh government has been criticised for wasting £1.6m of public money on a failed scheme to turn a derelict hotel into a kung fu centre.

A report by the public accounts committee said there had been flaws in civil service processes over the purchase of River Lodge in Llangollen.

Community group Powys Fadog wanted to turn it into the first Shaolin centre outside China.

The Welsh government said it would carefully consider the report.

The River Lodge was bought by the Welsh government in 2007, with the intention it would be leased to Powys Fadog, led by martial arts expert Pol Wong.

But the deal collapsed and since then has been subjected to an investigation by the Wales Audit Office last year and the assembly's public accounts committee which published its findings on Tuesday.

Both reports said the Welsh government wasted £1.6m of public money on the purchase and highlighted a conflict of interest for a Welsh government official.

In addition, the public accounts committee made 21 recommendations for improvements to its governance and management processes.

"This inquiry into the Welsh government's acquisition and action to dispose of the River Lodge Hotel has been one of the most illuminating and troubling ever undertaken by the committee," said Darren Millar AM, the committee's chair.

"The fact that over £1m of public money has been wasted as a result of the various decisions taken in the course of this troubled project is concerning enough in itself.

"But it is the flaws in civil service systems and processes which this inquiry has exposed, and which are coming to light in our wider inquiry into the Welsh government's grants management, which have left us deeply uneasy."

Pol Wong from the Powys Fadog group said he was sad that the building had fallen into disrepair, but also that an opportunity had been missed.

"It's just a wreck and that for me is heart breaking," he said.

"That was a dream that we'd achieved. We got permission from the Shaolin temple in China - these things don't come easy. To stop it like that is heartbreaking. It's been almost like a bereavement.

"More importantly it's the five years that have been wasted when we could have been employing people and bringing health and fitness to people."

A Welsh government spokesman said: "We recognise that there were shortcomings in the way in which the acquisition and disposal of the former River Lodge Hotel, Llangollen were dealt with.

"The former Permanent Secretary commissioned the Wales Audit Office to produce their report, which in turn led to the public accounts committee's report on the same issue.

"We will carefully consider the public accounts committee's report as we continue to implement the lessons learned from River Lodge, across the Welsh government. We will respond formally to the committee in the usual manner."