Cambridge County Council said it was "going back to the drawing board" after a public consultation into the idea of introducing a £3 to £5 congestion charge during the morning peak failed to win enough public support.
The city's bid for £514M of the Department for Transport's £1.5bn Transport Innovation Fund (TIF) depended on a congestion charging scheme coming forward. But the Conservative-led council said that the consultation showed that it could not go ahead as planned.
"We have listened carefully over the last few months and it is clear that the TIF scheme we put forward for consultation last autumn does not have sufficient support either from the other
key organisations or the public and needs, at the very least, refinement," said council leader Jill Tuck.
Cambridge's decision means Manchester is the only city currently in line for congestion charging-linked TIF cash. This could change if Bristol and Durham launch congestion charging proposals this autumn.
But even Manchester is now considering holding a referendum on its plans.
A Campaign for Better Transport spokesman said that Cambridge's decision to turn its back on TIF showed that the government's congestion charging policy was in tatters.
"We've said all along that a policy starting with local trials would put too much pressure on local government when instead the government should be taking more leadership and preparing a national scheme."
Cambridge's public consultation found that 59% of local people were in favour of congestion charging if good public transport alternatives were put in place first. But it is thought that
the council took fright after the city's Chamber of Commerce launched a campaign against the plans last month.
Cambridgeshire County Council has not ruled out congestion charging completely.
It plans to launch a new commission of key public and private bodies in the city to agree long term traffic congestion solutions in Cambridge and the surrounding area.
The commission, likely to include Cambridge University, the Chamber of Commerce and Adenbrookes Hospital, could bring forward another congestion charging proposal.
Traffic congestion in the Cambridge area is expected to get considerably worse in the coming years because of plans to build 58,000 new homes in and around the town in the next few years.