The tabernacle was installed by Catholic chaplains last October, but removed days later following protests from the HSE.
It pointed out that this was contrary to policy, as the prayer room was intended for all, not just Catholics.
The HSE made an offer to the Catholic chaplains concerned, two priests and two lay ministers, to accommodate the tabernacle adjacent to the prayer room.
One of the chaplains, who asked not to be named, told The Irish Times last weekend that they had secured agreement from Church of Ireland and Presbyterian counterparts at the hospice before the tabernacle was installed.
The hospice pointed out that the prayer room was a multi-denominational facility and that a tabernacle could be placed adjacent to but not in the prayer room.
The chaplains removed the tabernacle. Further talks with the HSE were to take place when the matter became public after a call to Highland Radio on Thursday.
In a statement yesterday the HSE said it was “most regrettable that this controversy has arisen”, but felt it important to stress that the situation was not of its making.
“The hospice building in Letterkenny has one multi-faith prayer room that can be used by everyone so that all spiritual needs are met in an inclusive manner.
“The HSE has always recognised the importance of the spiritual dimension in a hospice setting.”
It pointed to the Hospice Friendly Hospitals programme, and its “design and dignity” guidelines, which recommended that a hospice have “at least one multi-faith space that can be used by everyone, regardless of personal faith or religion”.
It said: “The role of the HSE is to respect this ethos and to ensure the agreement of all faiths prior to any particular changes such as the installation of a tabernacle. No HSE staff took part in the installation or removal of the tabernacle.”
The HSE would “facilitate the provision of a tabernacle in a suitable location within the hospice on the basis of its obligations as a public service body and agreement between faiths and the voluntary committee who support the facility”, it said.
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(Source: CIN)