The Palace Theatre in Westcliff could shut down for good despite notching up its best trading year ever.
Swingeing budget cuts at Southend Council mean the Palace must either be off-loaded to a private company or face permanent closure.
Council leader Howard Briggs revealed the proposal to balance the budget and said Southchurch library and all seven community centres in Southend will also have to close.
Mr Briggs said: "At the moment, we are in discussions with an outside company about the possibility of them taking over the Palace.
"This would be to operate it independently as a theatre and not linked in any way with the Cliffs Pavilion, and if it happens then all will be well."
Otherwise, it is expected the Palace Theatre, which sold 22,500 seats for 51 performances last year, would close its doors within the next few months.
Mr Briggs said: "The harsh reality of the situation is that we have been subsidising the Palace to the tune of £300,000 per year for ages and we just cannot afford to continue to do so in the current financial climate.
"The arrangements where the Palace and the Cliffs come under the same management has meant the losses at the Palace have been able to be controlled and kept down to this level.
"If the two venues had not been put under the same management then the situation would be far worse than it is now."
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