Ambitious plans for a major mountain biking development in the central belt have collapsed, leaving a trail of rescinded grants, mass resignations and bitter recriminations.

The Forestry Commission has been blamed for wrecking a £1.5 million plan to extend bike paths at its Carron Valley Forest, near Stirling.

The government body's behaviour has been manipulative and "disgraceful", according to local politicians.

The Carron Valley Development Group, a voluntary organisation set up five years ago to promote mountain biking in the area, has given up and decided to disband. It has handed back a £35,000 grant, withdrawn from the development partnership and accused the commission of "fighting dirty".

The accusations, however, have been rejected by the commission, which insists it is committed to developing mountain biking in Scotland. It has been backed by the Scottish environment minister, Michael Russell, who said that "a small group of activists" had been denied what they wanted.

There are already more than 10km of bike trails in Carron Valley, which have attracted over 25,000 visitors since they opened in March 2006. Plans for a threefold expansion have been under discussion since 2006, but with few signs of progress on the ground.

Frustrated by the delays, the Carron Valley Development Group voted at its annual general meeting last week to wind itself up and rescind its grants. Members of the group have grown weary of having to deal with what they see as the Forestry Commission's "institutionalised arrogance and colonial style of rule".

The group's chairman, David Russell, said: "When a community group with a voice actually stands up to them they resort to time-wasting and treachery to crush them in a slow but inexorable process." He accused the commission of reneging on its initial backing for major development at Carron Valley. It had deployed "interminable stalling tactics", including switching around staff, failing to answer emails and producing negative reports, he alleged.

The commission had tried to break up, then rejig the development partnership to deprive voluntary groups of power, Russell claimed. And it had repeatedly failed to answer questions, forcing the group to resort to requests under freedom of information law.

He called on Michael Russell to launch an investigation before he was further implicated in the whole sorry episode. "The minister has to cut out the dead wood in his organisation or accept responsibility for this himself," argued David Russell.

Another group member, Kevin Wilson, added: "It is frankly scandalous that a public body such as the commission can treat a voluntary community group with such blatant contempt."

The group's accusations were supported by the local Labour MSP, Cathy Craigie. "They have spent more effort creating problems than finding solutions, and seem more interested in breaking relationships than building them," she said.

Mark Ruskell, the former Green MSP for the area, was "gutted" that a grassroots group which had invested so much effort had been "manipulated and cajoled" by a government body.

But the minister, Michael Russell, defended the commission, arguing that it had been doing its best. He regretted the resignation of the Carron Valley Development Group, but suggested that their expectations had been too high.

"The commission supports mountain biking in a variety of ways," he told the Sunday Herald. "But we have no plans, nor are we able, to create more world-class facilities in Scotland and I'm sorry if that seems to run counter to what this small group of activists seem to want."

He pointed out that there had been investment in the last year in landscape, road and car park improvements, as well as a new toilet.

"The partnership is also looking at further improvements, such as the completion of the first stretch of a lochside trail, and a viewpoint and picnic area," he said.