Accepted as PhD student, but my funding application was rejected. Now my prospective PhD advisor recommends that I should bail out. What should I do?
Probably write to that supervisor, asking that if you think you will be busy, then perhaps you can suggest any other colleague.
There can be many reasons which that guy must have shared with you. I am assuming a few instances.

First, as pointed out in the comment above, he may be thinking that
getting a self-funded Ph.D. is too over-burdening to you (which
frankly, it is, because unlike bachelors or Masters degrees, Ph.D. is not only
tough, there is no minimum time-limit per se)

Secondly, he may be leaving the university or department, or he may have other engagements that do not allow him to supervise you at the moment. In that case, your asking him to direct you to any other colleague of yours would make more sense.


But frankly, I personally think that one should do a PhD on any funded project. A self-funded Ph.D. journey often gets a bit bitter towards the end.