Plans to turn a South Yorkshire school into a city academy sponsored by a group which promotes Christianity have collapsed.
Northcliffe School takes pupils form 11 to 16
The Emmanuel Schools Foundation was offering £2m to help rebuild Northcliffe School at Conisbrough near Doncaster which is in special measures.
But after strong opposition from parents, Doncaster Council has backed away from the deal.
Parents said they were worried about a potential loss of accountability.
The Emmanuel Schools Foundation - formerly the Vardy Foundation - was set up by Sir Peter Vardy who made his fortune through a chain of car dealerships.
It already has colleges in Middlesbrough and Gateshead and is hoping to open another one in Thorne, also near Doncaster.
Sir Peter is a committed Christian and there has been criticism that the foundation's schools present both the Bible account of creation and the Darwinian theory of species evolving over time.
Doncaster's elected mayor, Martin Winter, said: "In view of the strong feelings which have divided the community, and following discussions with the Emmanuel Foundation we have decided not to move forward with this particular project."
Last month, parents put the school up for auction on eBay as a protest at the planned involvement of Sir Peter.
The web advertisement said that subjects, especially science, would present "creationism on the quiet" .
Tracey Morton is one of the parents who have been fighting the plan to involve the Emmanuel Foundation.
She told BBC Look North: "This is our community school and we should have the right to send our children to a state school that isn't underpinned by very, very strong Christian beliefs."
The headteacher at Northcliffe, David Martin, admitted there had been disagreements about whether to accept the Emmanuel Foundation money.
"What we have to do now is heal these rifts," he said, "and we must all try to make Northcliffe the best possible school."
Sir Peter said the campaigners should not be celebrating but should be "reflecting on the opportunity they have denied their children for an education of the very highest standard in state of the art facilities."
He added that the foundation would now turn all its attention to its proposed Trinity Academy at Thorne where work has already started
Mr Winter said he is still determined that education standards at Northcliffe will improve and talks will reopen with the government to find the right solution.