UEFA has dropped Bilbao as a host city for Euro 2020 this summer, according to a statement published by the regional authorities on Wednesday.
The Bilbao committee in charge of the four games due to be held at San Mames stadium has criticised UEFA's "unilateral" decision and asked to be compensated for the money spent on organising the event.
The president of the Spanish football federation (RFEF) Luis Rubiales has previously indicated Seville's La Cartuja stadium would be a possible replacement.
Bilbao was named as one of the original 12 host cities but the chances of fans being allowed to attend games there appears slim, after the Basque government insisted on a number of strict health conditions being met.
The RFEF reacted angrily to those conditions, which it said would be "impossible to comply with". They included 60 percent of the region's population being vaccinated before June 14.
On Monday, UEFA gave Bilbao, Dublin and Munich until Friday to gather information but Bilbao organisers said on Wednesday they had received "official communication from UEFA in which, unilaterally, it has made the decision to withdraw the San Mames stadium from the hosting of Euro 2020".
In the statement, the Basque organisers expressed anger at the decision. "Euro 2020 will not be played in Bilbao. But we are not going to allow them to play games with Bilbao and the Basque institutions," it read.
"We have not found a single reason, sporting, social or economic, and certainly not related to public health and measures to prevent the spread of the coronavirus, in any of the UEFA communications."
The organisers said they are seeking legal advice.
"The contract that unites us with UEFA and with the RFEF and the official communication of UEFA is already in the hands of the legal services of the so-called 'Bilbao Committee' for study and evaluation," the statement added.
"And so that the compensation of the amounts invested to date in organising the event, which amounts to more than 1.2 million euros, as well as the possible damages caused by said decision can be evaluated."
Nine of the proposed 12 host cities for Euro 2020 have committed to allowing crowds of 25 percent of capacity in for the tournament.
Dublin's participation is in doubt after Irish deputy prime minister Leo Varadkar said on Wednesday the city is unlikely to be able to host if UEFA continues to insist on that level of capacity.
European football's governing body is due to take a final decision on Friday over where all matches will be held.