More than £20m of NHS funding is being withheld from a cash-strapped hospital - because it spent too much money on staff and beds.
NHS England will no longer give the Norfolk and Norwich University Hospital an extra £21m, after it failed to hit budget targets.
It means the hospital is now expected to overspend by £57m this year, £37m more than planned.
Norwich South Labour MP Clive Lewis accused the Government of "dumping" the hospital in a "no-win situation" through austerity.
The hospital said on average it was 82 beds short every day and around 100 operations were cancelled in December on the day because of bed shortages.
Mr Lewis said: "It's heads you lose, tales you lose and is no way to treat a hospital that all of our county's people depend on."
But NHS England defended the move and said it expected every NHS organisation to "live within their means".
Norwich North Conservative MP Chloe Smith is due to meet Chancellor Sajid Javid on Wednesday to discuss capacity at the hospital's A&E department.
The hospital's head of finance, John Hennessey, said the Trust missed its targets because it did not have enough beds to perform as many surgeries as it wanted and so did not get as much income.
A packed emergency department also led to a bed shortage and meant not enough surgeries could go ahead, papers going before the Trust's board on Wednesday said.
Mr Hennessey added that the NNUH also spent more on pay because it had to hire more temporary staff.
See also: Photo of sick child sleeping on hospital floor lays bare severe A&E pressures
Chief executive Sam Higginson said the hospital faced "significant financial challenges" but it had spent more money on recruiting extra staff and opening more beds because it was the right thing to do for patients.
He said a new, 70-bed ward block opening in March should relieve pressure.
Inspectors from the Care Quality Commission (CQC) visited the emergency department in December.
They praised staff but said the hospital was "clearly under intense pressure".
The Queen Elizabeth Hospital in King's Lynn, meanwhile, has been rewarded by NHS England for hitting its financial targets.
It has been given £13m this financial year as a reward for hitting its budget targets.
-Analysis
The NNUH is being denied two pots of money by NHS England.
They are called Provider Sustainability Funding (PSF) and Financial Recovery Funding (FRF).
The money is given to hospitals and NHS trusts which deliver their 2019/20 financial plan.
The hospital said it went over its budget because of the pressure on it.
It had to open more beds and hire more staff, thereby costing it more money.
The hospital said this was the right thing to do for patients.
But NHS England said Trusts have to live within their financial means.
It wants the NHS as a whole in Norfolk and Waveney to work together to make best use of its resources rather than work in silos of separate Trusts.
The fact the hospital is deep in the red should not have an impact on the day-to-day running of it.
The Department of Health has given the hospital loans to keep it going.
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