Plans to build a new jail in Essex have been put on hold following the Spending Review.
The former Runwell Hospital site near Wickford had been earmarked to become a 1,500-place prison by the Ministry of Justice (MoJ).
A plan was submitted in January and then temporarily withdrawn by the MoJ, which said at the time that it was still committed to the development.
It has now revealed it will not make a new application to the borough council.
A MoJ spokesperson said: "We have contacted the owners of the former Runwell Hospital site, the Homes and Communities Agency, regarding the outcomes of the Spending Review.
"The Ministry of Justice is committed to publishing a Green Paper on Rehabilitation and Sentencing, and consulting on longer term plans for offender management.
"As a consequence the department will re-evaluate its long term strategy for prison capacity."
A spokesman for campaign group No Prison In Runwell said: "It is obvious to anyone who knows Runwell that the location is quite simply the wrong place for such a vast prison complex.
"Strong resistance would have been maintained until the convincing arguments that have been put forward by the community won through."
Ray Ride, who represents the ward on the borough council, told BBC Essex a parish council survey and one carried out by him and another councillor both revealed 90% of local people were against the prison.
"We need the regeneration of Runwell Hospital with a high quality residential development that would bring significant benefit to the area and the local town of Wickford," he said.
The MoJ had said the prison could create more than 800 new jobs and generate about £17.1m in annual revenue for the local economy.