New York Mayor Michael Bloomberg's plan to ease transport gridlock in Manhattan with a congestion charge has been blocked by the state's assembly.
The scheme would have charged most drivers $8 to enter the city's centre between 0600 and 1800 on weekdays.
New York will now forfeit a $354m federal grant intended to kick-start the initiative, which aimed to persuade drivers to use public transport.
The assembly rejected the plan after days of closed-door negotiations.
"There was no support in the Assembly majority conference to bring the bill to the floor," said a spokesman for Democratic Assembly Speaker Sheldon Silver.
Map of what had been proposed as a congestion charge zone
Greener city
"What we are witnessing today is one of the biggest cop-outs in New York's history," said John Gallagher, a spokesman for Mr Bloomberg.
Mr Bloomberg had last year proposed copying London's strategy of easing both traffic and pollution, with a plan to invest billions of dollars in New York's public buses and underground rail system.
The congestion scheme had been the cornerstone of his proposals to make the city greener.
His initiative had already been endorsed by the state's Democratic Governor, David Paterson, its Republican-led senate and the New York city council.
But its detractors said the initiative had several drawbacks, including its failure to address traffic jams it would cause outside Manhattan.
"It is morally reprehensible and unconscionable to subject the 1.4 million residents of the Bronx to a potential double whammy consisting of a congestion pricing tax with absolutely no guarantee that they will not be subject to yet another transit fare hike in the near future," said Ruben Diaz, a Democratic Assembly member.
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