It took the decision on advice from international consultancy firm PriceWaterhouse Coopers who said that a site nearer the capital would attract more tourists.
Conservationists had vigorously opposed original plans to build the theme park near the listed medieval town of Sighisoara where Vlad the Impaler, Dracula's prototype, had lived.
An official from the Romanian tourism ministry said a new site would be chosen by March and was expected to open by the end of 2004.
Job creation
The government hopes the $30m theme park will create 3,000 jobs and inject new blood, so to speak, into Romania's tourism industry.
A site near Bucharest would draw more than 1 m tourists a year compared to 600,000 visitors for one built in Sighisoara, the consultants said.
Sighisoara authorities are unhappy with the tourist ministry's choice and have decided to withdraw their support for the project.
Bucharest claims its own ties to Vlad, who ruled what is now southern Romania in the 15th Century.
Vlad's body is believed to be buried in a monastery he built on an island in Lake Snagov, just north of the capital.
Legendary figure
Vlad the Impaler, as the prince was known, was famous for his cruelty.
According to legend, the bloodthirsty prince captured invading Turks and common criminals and impaled them on stakes in public market places.
That legend inspired Irish author Bram Stoker's 1897 novel which helped to popularise the myth of the bloodsucking aristocrat.
But the films made by Universal Studios helped to create Dracula as he is now known, complete with black cape, deathly pale skin and fangs.