BBC News websites would have had more video content under the proposal
The controller of BBC Wales says a BBC Trust decision to reject plans for local news websites with video content is "a very great disappointment".
Menna Richards called it "a blow to our ambition to improve services to audiences across Wales".
The plan was opposed by newspaper publishers, who argued that it could damage their own local online services.
Ms Richards said the proposal would have delivered "real value for licence fee payers" in Welsh and English.
The trust, which met earlier this week at BBC Wales in Cardiff where it made its decision, has ruled that the plan did not meet its public value test criteria.
BBC Wales controller Menna Richards on the decision to refuse plans for more video content online.
It decided that the corporation should focus on improving existing local services.
A study by broadcasting watchdog Ofcom found that if BBC local video web services were launched, annual revenues at existing commercial providers would fall by up to 4%.
Ofcom said the provision of local video online services could also deter local commercial media from further innovation in online local news, sports, and weather services.
The BBC Trust rejected the BBC's proposal to create an additional local video service, covering news, sport and weather, on enhanced websites known as BBC Local in 60 areas across the UK, with an additional five Welsh-language services.
Sir Michael Lyons, chairman of the BBC Trust, said that while licence fee payers wanted better regional and local services from the BBC, the proposal to run 65 video websites was "unlikely to achieve what they want".
It said the corporation should focus on improving existing regional services. Ms Richards said: "While we accept the BBC Trust's decision, it is clearly a very great disappointment.
"Despite the strong body of evidence submitted by BBC management, the Trust's view is that the proposed video service will not reach enough new users to make the investment worthwhile.
"Clearly this is a blow to our ambition to improve services to audiences across Wales. We believed that the local video proposal would strengthen the BBC's news coverage for communities across Wales and deliver real value for licence fee payers - in Welsh and English.
"In its ruling this morning, the BBC Trust challenged BBC management to instead improve and develop our existing services to ensure audiences across see a better reflection of their local communities.
"That is a challenge we will pursue with vigour.
"We will consider a range of options for how we can best achieve this and will return to the Trust in due course."
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