The MSP and former Scottish Labour leader told the Daily Record she felt “crushed” by the decision and that she had “lost the ability to cope” for a few days.
Ms Dugdale is being sued in a £25,000 defamation case by Stuart Campbell, who runs the pro-independence Wings Over Scotland website.
He took action over an article Dugdale wrote in her Daily Record column in March last year where she alleged he’d sent “homophobic tweets”.
Last month Sheriff Kenneth McGowan said Dugdale’s article was “capable of carrying the innuendo complained of” by Campbell, and paved the way for a full hearing.
Ms Dugdale revealed she only learned financial support had been withdrawn in an email from her solicitors.
She also said Labour leader Jeremy Corbyn has failed to respond to texts she sent him asking for support.
She said former Labour general secretary Iain McNicol had initially promised the funds to take on the case.
“There was no question mark over it, they were going to support this case,” Ms Dugdale said.
“Fast forward 18 months - and it’s pretty shocking it’s taken that long to get to the preliminary hearing, we’re not even at the full proof yet - and I had to find out by email from my solicitor that the Labour party weren’t prepared to pay any more legal bills.
“Safe to say the one factor that’s changed in that time is the general secretary, it’s a woman called Jenny Formby.
“When I found that out by email, I was pretty crushed to be honest.
“I probably hit one of the lowest personal moments of my life. I’ve lived through a lot of very stressful situations, I’ve developed coping mechanisms in stressful situations, but I lost the ability to cope with this for a few days.
“First of all, how was I going to pay? This could mean my house, my livelihood. You can’t be an MSP if you’re declared bankrupt.”
Ms Dugdale could also have to pay Mr Campbell’s legal costs if she loses. She said the Labour party had already spent £90,000 before they withdrew support.
“It’s enough to make me really worry about my personal financial security,” she said.
“I had a moment of crisis around how I’m going to pay, and secondly, how could my party do this to me?”
Ms Dugdale, who is a regional MSP for the Lothians, said politicians across parties had offered personal support.
But she has still not heard back from Mr Corbyn.
“Lots of my colleagues have been very supportive, and not only have they given support on a one-to-one basis but they’ve let me know the party membership at large are very angry and very worried about this decision,” she said.
“I’m very aware that I’ve upset a few people in the party over the past 18 months or two years, but even some of those people who would no longer consider themselves natural supporters of me and the politics I represent, are still full-square behind me.
“I have repeatedly asked Richard Leonard for support. He’s been very supportive recently.
“Because this is a real crisis point for me, I’ve been looking for support pretty much wherever I can find it. I twice tried to contact Jeremy Corbyn - someone I used to be in regular contact with, we’d regularly exchange texts - I know he’s read those messages but he’s yet to respond.”
Liberal Democrat MSP Alex Cole Hamilton said: “To make a commitment to financially support a legal action and then to withdraw that commitment without even corresponding that to the person concerned, is utterly reprehensible.
“Right across the parliament there is outrage at the way Kez has been treated.”
Mary Fee, Chair of the Scottish Labour Parliamentary Group, said: “On Tuesday 25 September, Kezia Dugdale MSP updated the Scottish Labour parliamentary group about the status of the legal action against her.
“The Labour group expressed full support and solidarity for Kezia in the case.”