Big in Falkirk had attracted more than 100,000 visitors a year
Councillors in Falkirk have voted to scrap the Big In Falkirk festival amid concern about the £400,000 cost of staging it.
The local authority said the financial climate meant resources were needed to maintain frontline services.
More than 100,000 people attended this year's festival, which was credited with raising £1m for the local economy.
However, members of Falkirk Council's Leisure Committee agreed it was "unsustainable" in its current form.
The decision has been criticised by opposition councillors who described it as "blinkered" and "short-sighted".
Grangemouth SNP Councillor Angus MacDonald said: "Sadly, at times of economic hardship, arts and culture provision is the first and easiest target for cuts.
"The decision by the ruling Labour/Tory administration in Falkirk to axe the festival is an extremely blinkered and short-sighted move, particularly when you take into account the 100,000 visitors and £1m the festival attracted to the town every year."
In a report to the Leisure Committee, the council's director of community services Maureen Campbell said it was "difficult" to present a robust case for the festival's continuation in the current financial climate.
The report added: "Big in Falkirk has been hugely successful over the 10 years of its existence.
"It has brought new and exciting arts forms and spectaculars to the area. It has placed Falkirk among the best of street theatre festivals in Europe.
"However, given the financial challenges facing the council, it is suggested that its priorities lie elsewhere and that unfortunately Big in Falkirk will not take place in 2010."
The free street arts festival, which took part in the first weekend of May, had been staged every year in Falkirk since 2000.
Since it began it has featured performances from Snow Patrol, Deacon Blue and Bob Geldof.