The board of the Victoria & Albert museum (V&A) has dropped plans to build its controversial £70m spiral extension, designed by Daniel Libeskind.

In a meeting on 16 September, the trustees of the board said the Heritage Lottery Fund’s (HLF) decision to reject a £15m application from the V&A in July had killed off all hope of securing the public funding needed to build “a design of the scale and ambition of the Spiral.”

Mark Jones, director of the V&A, said: “It is with great regret that we have decided not to go ahead with the Spiral following the decision of the HLF.

“We will now take the opportunity to rethink our plans for the use of the site on Exhibition Road.”

The Spiral, initially proposed eight years ago, was designed to house contemporary displays of design and craft, fashion, photography, architecture and the graphic arts, but the HLF announced it was not going to fund the scheme last July.

Carole Souter, HLF’s director, said: “We thought long and hard about this proposal but finally decided that it would not be able to deliver the major heritage benefits that we expect to see for such a large request.

“Daniel Libeskind’s vision for the V&A’s Spiral was imaginative but did not deliver well against our key requirements of conservation, education and enjoyment of the UK’s heritage.”

At the meeting last week, the V&A’s board also announced it had a number of other developments in the pipeline, including the opening of a new Islamic Gallery in 2006 and a new jewellery gallery in 2008.