The role of developing an Olympic legacy could be dropped from the portfolio of the Mayor's troubled economic agency, it was revealed today.

Instead a new and separate legacy body would be set up in an effort to slim down and reshape the London Development Agency.

The move was revealed by the agency's interim chief executive Peter Rogers who also said many other community projects would be dropped in order to focus on bigger schemes.

Mr Rogers said: "What I saw here was not a well-functioning organisation.

"The agency had suffered from weak leadership, lacked strategic directions and criteria applied to investments was not best practice."

The decision comes in the wake of the findings of a forensic audit panel ordered by Boris Johnson in his first few days as Mayor. The panel found that "tens of millions" of pounds had been wasted.

A further investigation into alleged misappropriation of funds in relation to Ken Livingstone's former race adviser Lee Jasper is being carried out by police.

The appointment of Mr Rogers followed Mr Johnson's decision to get rid of chief executive Manny Lewis with a payoff of more than £200,000.

Mr Rogers said cash had been "spread around too thinly". He said: "I am refocusing the LDA on its priorities of longterm growth for London, on producing skills and providing jobs.

"Such a long-term strategic view was not apparent in this agency."

The new business model will mean fewer staff, with 173 job losses, losing the Olympic focus and new strategic goals to stimulate development.

Mr Rogers, former chief executive of Westminster council, said: "The Olympics legacy is too big to be defined by a single agency.

"The LDA would remain very close to [the new body] as it has land assets and has to produce skills. And we would second people to the team."

Mr Rogers said the agency's most important task was to win back the trust of senior business leaders.

Helen Hill, policy director at the London Chamber of Commerce and Industry, said: "It definitely makes sense for the LDA to adopt a much more strategic approach in future and leave delivery to the experts on the ground."

A spokeswoman for London First, the business lobby organisation, said: "With its strong new leadership and a slimmed down mandate, the LDA has the chance to foster economic development and regeneration, which it was set up to deliver."