The $14 billion public-private plan to redevelop Penn Station, move Madison Square Garden, and open up millions of square feet of office space on Manhattan’s West Side is moving closer to collapse after Madison Square Garden officials announced they would move ahead with an alternate renovation plan.

The news would force developers, including the Related Cos. and Vornado Realty Trust, and a bevy of city and state agencies back to the drawing board. Elected officials responded yesterday with a measure of skepticism, frustration, and outrage.

“Madison Square Garden’s announcement demonstrates a callous disregard for both the future of the Moynihan Station project and the future of New York City, as well as disrespect for the legacy of Senator Moynihan,” the City Council speaker, Christine Quinn, said in a statement.

“I was also surprised to hear the Garden announce plans to proceed with renovations, as any such work would require significant City cooperation,” she said. Over the past several months, concern has mounted over whether the project, which requires the coordination of the Bloomberg administration, Albany, Amtrak, the Port Authority of New York and New Jersey, New Jersey Transit, and the Long Island Rail Road, would become a reality.

The project, which was named after Moynihan, who unveiled its plans in 1999, would remake Pennsylvania Station and move Madison Square Garden to the rear of the neighboring Farley Post Office, which would also house a new train hall.

“After exploring several alternatives, it has become clear that the only viable option is a renovation,” a spokesman for Madison Square Garden, Barry Watkins, said yesterday in a telephone interview, adding that details of the renovation would be available in the coming days.

Madison Square Garden’s decision to move ahead with the renovation came just hours after Senator Schumer called upon the Port Authority to take over the project and after Governor Paterson signaled his support for more Port Authority involvement.

The plan calls for Madison Square Garden to move to the 9th Avenue end of the Farley Post Office site, which would allow for Penn Station to be remade.

Some elected officials and members of the development community speculated that the Garden’s move could be a negotiating ploy.

Madison Square Garden is in the process of trying to fend off the state Legislature, which is considering ending an $11 million a year property tax exemption that it has benefited from for more than 25 years.

“I don’t know if it’s a well-considered move on their part or a negotiating strategy, but it seems like peculiar timing,” said the president of the Municipal Art Society, Kent Barwick who called the Moynihan Station project the most important project in New York City. Mr. Barwick said there is no reason why the entire plan should die even if Madison Square Garden backs out, as the required funds necessary to start work on the west end of the project are already in place.

“The Garden doesn’t have the power to kill rail travel in New York, but they are not negotiating in good faith or respecting the integrity of the building they want to move into. It really is troublesome and they should be giving as much attention to this as they are to the selection of their next basketball coach,” he said.

State officials recently said they were at least $1 billion short of securing the $2.3 billion needed to fund the Moynihan Station.

The largest financial commitments to date have come from the private developers who have committed a combined $550 million to the project. The state and city have committed $300 million.

A former co-chairman of the Empire State Development Corp., Patrick Foye, in a recent interview just prior to resigning, told The New York Sun that he was optimistic the federal government would fill in the remaining gap.

The president of Moynihan Station Venture, a joint venture of Related and Vornado Realty Trust, Vishaan Chakrabart said he is optimistic that the plan would move forward with the aid of elected leaders. “While we understand the frustrations of Madison Square Garden after three lengthy years of pursuing this grand but complex plan, we have every faith that our city, state, and federal leadership will enable this project to become a reality for all New Yorkers,” he said.

A spokesman for Mayor Bloomberg, John Gallagher, suggested the project is still in play. “We remain committed to our objectives of the completion of a new world-class train station and the development of the surrounding area,” he said.