Chillerton and Rookley Primary School has become untenable, according to the headteacher of the federation consulting on closing the site.
Mark Snow, headteacher of the Stenbury Foundation, which is looking to merge the school with Godshill Primary and consolidate at the Godshill site, said the issue of school numbers was a vicious circle and the federation was falling into a black hole.
An informal consultation was started in January to see what people think about the amalgamation.
Speaking at a meeting of the Chillerton and Gatcombe Parish Council, Mark Snow, executive headteacher of the Stenbury Federation said: "Fundamentally as a school we need children to be in it.
"We need the bums on seats but if they are not there the school is difficult to manage with a budget that is shrinking by the day. We have to make some difficult decisions."
Back in July, plans were put in place to keep the school going this year but when no children applied to come to the school further challenges were presented.
With even fewer children predicted to enrol in the coming years, Mr Snow said without doing something radical or different the school's deficit would not get any smaller.
He said: "It is not just about money, it is about the wellbeing of children but if the funding is not there, what can I do? I have no financial or emotional gain for going through this.
"I have a passionate desire to do the best I can but there is a point where we have to ask what is still sustainable? And we are at that point where we are seeking that support to say, what do we do next?"
One parent, Graham, said no one had been applying for admission as it had been 'fairly good knowledge' the school was looking to close.
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However, Mr Snow said both pre-schools in the Federation were haemorrhaging money and although the children were at Godshill at present, the plan was to bring the children back to Chillerton if enough applied.
Chair of governors, Di Barker, said without the proper funding they could not offer the children the proper education they deserve.
She said:
"I would far rather not be in this position; I am a huge supporter of small rural primary schools but we are in danger of loosing more than one."
No decision has been made yet on the future of the school and the informal consultation is set to run until March 19.
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