The New Zealand Rugby Union says community rugby will continue in Otago despite the region's union confirming it will go into liquidation.
The Otago Rugby Union has debts of $2.35 million and ceased trading in December last year.
It plans to apply on Friday to the High Court to be liquidated.
The South Island club says its financial situation is due to a number of factors going back many years - among them the 2009 sale of Carisbrook and declining spectator numbers.
NZRU chief executive Steve Tew says 180 tradespeople are owed money as well as the Dunedin City Council.
He says the NZRU will fund community rugby in the short term.
"Club rugby, school rugby, coach development, our safety programmes - all those things will continue as if nothing has happened, until such time as the clubs of the Otago region can determine what they want to do in the future."
The national union will immediately appoint people to run community rugby and will pay those salaries.
Mr Tew says the viability of entering an ITM Cup team from the Otago region in the 2012 competition will be assessed.
"We've said that we will hold off putting out the ITM Cup draw for a week or two, and give the local people here a chance to see if they can come up with what it will require in terms of money to run an ITM Cup team."
Otago Rugby Union chairman Wayne Graham says provincial rugby has not worked for it for a number of years and the game will need more community support if the province is to field an ITM Cup side this year.
David Latta, who played 161 games for Otago rugby, captained the team and until recently was its assistant coach, said the liquidation move is a shock and a real disaster for the province.
He says says it is crucial some way be found to put an Otago team in the national provincial championship this year or even more will be lost.
The NZRU says the decision does not affect the Highlanders franchise, as it is a separate legal entity contracted by the NZRU.