The proposed £300m Caltongate development in Edinburgh looks set to be scrapped after the city council withdrew its support.
The controversial scheme ran into difficulty in 2009 when developer Mountgrange went into administration after Lloyds Banking Group pulled its financial backing.
The local authority had agreed to sell plots of council land to support the development. But after negotiations by Lloyds, which now owns to site, to find a new developer proved unsuccessful, the council has decided to cancel the arrangement.
Economic development councillor Tom Buchanan said: “The council has worked for some time with the bank’s administrator in order to assist it in realising the potential of the site, but it is now apparent that the proposed development will not go ahead.
“As a result, we feel it is in the council’s best interest to draw a line under this matter and exercise our right to formally terminate the sale agreement.
“Nevertheless, our ambitions for the area remain undiminished. We continue to believe that Caltongate presents a wonderful opportunity as an investment prospect and that it will improve our historic Old Town. We will therefore continue to work with potential investors to promote the site to developers.”
Mountgrange had planned the construction of 200 homes, as well as a five-star hotel and conference centre, a new culture quarter and a public square, on the site.
However, there were many objections to the scheme, with locals concerned the area could lose its Unesco world heritage status.