Shropshire Council says it gave The New Saints FC £80,000 six years ago on the understanding it would be repaid, but so far only £10,000 has been recovered.
It says it was a 'legacy grant' paid out of its market town revitalisation programme and was meant to be a loan.
But the club, based in Oswestry, says the money was never meant to be repaid.
Its chairman, Mike Harris, has called for the council to apologise, claiming the grant was not repayable if its terms were met.
The money paid for a 500-seat stand so that the club, which currently plays in the Welsh Premier League, could play European matches.
An audit report by the council said it was unclear why the funds were not recovered earlier.
Claire Porter, head of legal and democratic services at Shropshire Council, said: 'We have commenced court proceedings, and we are therefore unable to make any further comment during the course of the litigation.'
