The 600,000 sq ft city-centre development was first put on hold in December 2008 when a group of northern Irish investors withdrew funding from the project.

Wolverhampton city council had agreed to step in principle. But a detailed assessment of the risks involved by council officials has concluded that there were “too many financial uncertainties and risks” in investing public money in the scheme.

Plans included the compulsory purchase of 200 businesses by a deadline of next month to make way for the mall.

The council said taking out a £20m loan to buy the businesses is not feasible in the current economic climate.

Councillor Peter Bilson said: “We all wanted Summer Row to happen after years of work and planning and the council has gone right up to the wire to try and salvage the scheme before getting to this point.”

Belfast-based developer Multi Development had been looking for new financial backers since a consortium made up of contractor Lagan, MAR Properties and housebuilding firm Windsor pulled out in 2008.

Paul Sargent, at Multi Development UK, said: “Naturally, we are deeply disappointed at the council’s decision after six years working on Summer Row, but we are sympathetic with the council’s viewpoint in the current economic climate of uncertainty.”