The country's Youth and Sports Ministry had to hoped to establish Brickendonbury High Performance Training Centre (HPTC) project in London as a base to prepare Malaysian athletes for 2012.
But following the decision by East Herts Council to reject Malaysia’s application to upgrade the Tun Abdul Razak Research Centre (TARRC) (pictured) because it is located in a green belt area the plan has now been dropped.
It boosts Marlborough College's chances of persuading Malaysia to prepare there during the build-up to the 2012 Games.
The University of Bath and Loughborough University are also in discussions with Malaysia about them using their facilities.
The plan had first been proposed by then Malaysian Sports Minister Azalina Othman, who had said the centre would help aspiring athletes "train and compete" more successfully in European events.
The plan became embroiled in controversy last year when there was an allegation that the Malaysian Government planned to use an arms deal with Britain to buy two frigates and other hardware as leverage to persuade British planners to approve the sports centre.
Youth and Sports Minister Datuk Ismail Sabri Yaakob today said: “As we are aware, our application to build the Brickedonbury HPTC had been rejected by the East Herts Council Development Control Committee.
“The Ministry can appeal against the decision and file a fresh application.
"But after studying it from various angles and considering the views of all parties, the Ministry has decided to shelve the project.
"So we will not make an appeal and file a fresh application."