Sheffield Arena was built with funds from Sheffield City Council
Campaigners opposed to the use of public money on a rival to Sheffield Arena have welcomed the government's refusal to approve the scheme.
The Department for Business says Leeds City Council's plan for a £78m arena does not provide value for money.
It has refused to allow development agency Yorkshire Forward to invest £18m in the plans in their current form.
MP Clive Betts, who said the scheme would threaten jobs at Sheffield Arena, said: "Common sense has prevailed".
Mr Betts's fellow Sheffield MPs David Blunkett and Angela Smith had also spoken out against the use of government money to pay for a rival arena in Leeds.
Mr Betts, MP for Sheffield Attercliffe, said: "For more than 12 months, I have simply pressed the case for this proposal to be judged on the basis of a rigorous, independent, detailed, regional economic impact assessment.
"It simply couldn't be right that Yorkshire Forward, charged with growing the regional economy, should be pushing millions of pounds into a new scheme which would have fundamentally undermined the economic viability of an existing organisation."
Leeds City Council said the decision would not halt plans for the arena.
Leeds City Council released images of the proposed arena last month
Joint council leader Andrew Carter said the South Yorkshire MPs' stance had "put in jeopardy a very good relationship that hitherto existed between Sheffield and Leeds."
Mr Betts said he had "no objection to Leeds pursuing its Leeds Arena proposals using local taxpayers' money and/or private resources".
He said: "My challenge all along has been to the suggestion that an economic development agency, serving the whole of the region, should use huge amounts of public money in one part of the region to damage the economy of another part of the region. That just cannot be right."
However, Yorkshire Forward said it had considered the project and decided it would benefit the whole region.
Sheffield International Venues, the group behind Sheffield Arena, has welcomed the government's decision.
The firm said the Leeds Arena would "seriously damage" its business and cause job losses.
A spokesman said: "Our view is that there is only demand for one arena of this size in the region."