The plans would have seen the square's lawn become more accessible
London Mayor Boris Johnson has shelved an £18m plan to transform Parliament Square into a pedestrian piazza.
The plan to ban cars around the area would lead to increased congestion in central London, Mr Johnson said.
In a separate announcement, the mayor cancelled 60 hydrogen vehicles which were aimed at developing low-polluting, sustainable transport in the city.
The scrapped plans prompted the Green Party's Darren Johnson to call the mayor an "environmental disaster".
On Wednesday, the mayor announced plans to shelve the pedestrianisation of Parliament Square saying Transport for London (TfL) advised it would lead to increased congestion in Westminster and central London.
He said: "This scheme would have turned a green glade of heroes into a vast, blasted, chewing-gummed piazza.
"There is absolutely no sense in Londoners paying £18m from their already stretched transport budget in order to reduce capacity on London's roads."
The project, which was given the go-ahead by former mayor Ken Livingstone, was scheduled to be ready for the London 2012 Olympics.
It would have meant closing the road to traffic in front of Westminster Abbey and the Houses of Parliament and the lawn would have become more accessible and replaced with stone paving and benches.
On the issue of low polluting vehicles, the mayor's spokesperson said he had acted on TfL's recommendation that they were not viable at this stage.
The cancelled vehicles included developing a wide range of prototype hydrogen vans, cars and motorbikes for use in the public sector.
She added: "The mayor remains fully committed to the development of hydrogen as a cleaner, greener fuel in London as indicated by the continuation of the programme to deliver 10 hydrogen buses and a refuelling facility."
Green Party London Assembly member Darren Johnson criticised the decision saying: "Mayor Johnson has just scrapped the biggest hydrogen vehicle project in this country.
"It is one thing for the London mayor to talk green, but he is clearly turning into a one man environmental disaster.
"He has scrapped the £25 charged on gas guzzlers and dropped plans for a pedestrian friendly Parliament."