The Games begin in under two months time
A decree in the state's Official Gazette warns emergency measures are needed to avoid "a total collapse in public security, health, education, transport and environmental management".
It authorises the state to "adopt all necessary emergency measures to ration essential public services in order for the Rio 2016 Olympic Games and Paralympic Games to take place".
In response, the Brazilian government is to transfer the equivalent of €750 million.
Daniel Hamilton is a British-Brazilian International Political Consultant and says it's a dire situation:
Brazil's economy is floundering amid a deep recession and Rio state is in a financial crisis because of relatively low oil prices. State government employees, including teachers and police officers, have had their wages delayed.
The country's interim president Michel Temer, has promised the federal government will ensure all obligations are met for a successful Games.
More than 10,000 athletes and half a million tourists are expected to arrive in Brazil for the Olympics, which has coincided with a political crisis and one of the country's worst recessions.
The ongoing financial turmoil has resulted in some schools being shut and hospitals running low on critical supplies of medicines and syringes. Amnesty International has expressed concern that some of the cuts to social services could affect the crucial work of security agents in Rio's crime-ridden slums.