Music To Know, which was due to take place this weekend in East Hampton, was cancelled after organisers sold just 2,500 tickets, meaning the event would make a loss.
The cancellation of the festival means that Vampire Weekend's only remaining live show of the year - and their only US date for the whole of 2011 - will now not go ahead.
"Despite our unique vision and arranging a world-class lineup, ticket sales were not adequate to allow the event to continue," a message posted on the festival's website said. "We wanted to let everyone know now before engaging more deeply."
Vampire Weekend's booking agent told Rolling Stone: "We are disappointed the festival was cancelled with such short notice.
"We were assured when we booked the show that ticket sales were not the sole funding source for the festival, as that's a risky way to finance a festival. Apparently that wasn't the case and it appears the festival organisers simply lacked financing and failed to properly promote their event."
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Watch the video for Vampire Weekend's 'Oxford Comma' below: