Director Milton Crosdale warned the government agency behind a controversial election of business people onto the board of Nottingham's New Deal for Communities that if the proposals go ahead unchanged they would be in breach of the Race Relations Act 1976.
'There are no precedents for a case like this,' he said.
His comments came after the agency, tasked with spending£55m on revitalising inner-city areas, delayed the election because of criticism.
Joe Montgomery, director general of the government's Neighbourhood Renewal Unit, spent a day locked in talks with the Council for Racial Equality and government advisers.
When asked if the election was legal, Mr Montgomery said it was an area which still needed investigation.
But he said: 'All the advice I have received on this makes me think this is not an area you want to be experimenting with.
A statement issued on behalf of Nottingham NDC and the ODPM said: 'Mr Montgomery was invited to attend by the board following concerns about the original plans for electing business representatives.
'The board has not yet come to a final conclusion on the way forward and will reconvene soon to consider the matter again, in consultation with the neighbourhood renewal unit and the government office for the east Midlands.'
The decision is now expected to be made at the NDC board meeting next month.