Spain has abolished a controversial plan to divert the Ebro River.
There have been protests against the diversion plan in the past
The previous conservative Cabinet had already started the project to transfer 100bn litres of water a year from the northern river to the more arid south.
But Environment Minister Cristina Narbona said it was being stopped for environmental and financial reasons.
Prime Minister Jose Luis Rodriguez Zapatero has already turned the former government's foreign policy on its head by ordering Spanish troops out of Iraq.
Instead of the Ebro plan, the Spanish Cabinet is backing an alternative, 3.7bn euro (£2.4bn) water plan that involves constructing desalination plants along the coast.
Ms Narbona said the 15 plants would provide the same amount of water as the pipeline but sooner and more cheaply.
"Everyone can understand that it's more logical to build a desalination plant close to where the water is needed than bringing water through a 900km (600 miles)
pipeline," she said.
By using a special decree to stop the Ebro project, the government finally put an end to one of the most ambitious water projects ever conceived.
The plan approved three years ago aimed to build more than 100 dams and hundreds of kilometres of irrigation channels to transfer the water from the Ebro River.
This highly controversial project soon got bogged down in political and funding problems.
In October, when the government of Prime Minister Jose Maria Aznar improved the environmental impact statement, the plan was set to go ahead.
But the Cabinet's decision on Friday means the project is abandoned with immediate effect.
Environmental groups that campaigned against the Ebro plan have said they prefer desalination as an alternative but do not believe the new proposal resolves all outstanding issues.
"It's not a panacea," said Mario Rodriguez, from Greenpeace. "There are still major issues that are not tackled such as the problems with the disposal of residual
Jose Perez, spokesperson for the conservative Popular Party, said the government was destroying the dreams of southern Spain.