The Swansea to Cork ferry will not run this year after the company said a deal for a new vessel had fallen through.
The company is laying off 30 staff
It is laying off 30 staff but said it hoped to resume sailings, which run between March and October, in 2008.
Swansea Council leader Chris Holley said the move was "highly regrettable" while in Ireland there have been calls for government intervention.
The company sold its old ferry last October and bid over £22m for a replacement but the deal had collapsed.
Since it was launched in 1987, the service has carried over three million passengers and their cars.
A spokesman said the decision to suspend the service throughout 2007 was taken with great regret.
"It is ironic that the service has had to be suspended at a time when the market indicators suggest an upturn in ferry travel," he added.
"It is our ambition to resume the service in 2008 and we would like to sincerely thank our staff for their commitment to the service and our passengers over the years for their support."
Mr Holley said: "From the information we have the service appears to have been a thriving one and that the problem stems from the route owners' inability to purchase a bigger vessel," he said.
"It's not clear at the moment what redundancies, if any, there will be in Swansea, however we will work hard to minimise the impact on local staff and suppliers.
"The council is keen to meet with the operators to seek further information about their plans for 2008 and discuss any ways in which might be able to support them in seeing the return of the service as soon as possible."
The Welsh Assembly Government said it was also keen to identify what support it could provide to resume the service next year.
In Ireland, tourist and shipping interests have called on the government to intervene and prevent the loss of the service.