A major £300m regeneration scheme in Edinburgh appears to have been dealt a fatal blow after the local authority announced that it had withdrawn its assets.

The City of Edinburgh Council (CEC) has blamed "protracted negotiations" between Lloyds Banking Group and potential new developers for opting to pull out of the Caltongate development. Plans, which were drawn up by Allan Murray Architects, included a public square and a five-star hotel with restaurant, a health spa and a café, as well as new conference facilities and office space.

According to the council, the talks were "unlikely" to secure the future of the scheme, which were thrown into doubt when Mountgrange - the company behind the plans - entered administration last year. A number of CEC-owned properties within the development site had been under offer to Mountgrange after entering into a sale agreement in 2006. However, the council now decided to terminate the sale process.

Despite receiving planning permission for the Caltongate development, Mountgrange had not received other permissions before it was declared insolvent last year and meant that the sale was not concluded. CEC convenor for economic development 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."