Essex Rivers Health Care Trust had already spent £3m on a privately financed initiative (PFI) to centralise its services at Colchester by 2009.
Services would have been moved to Colchester General Hospital, and Essex County Hospital would have closed.
Health bosses now say the plan is at odds with government white papers which call for healthcare in the community.
"This project has been binned I suspect at substantial cost"
In a statement, Peter Murphy the chief executive of the trust, said the plan now needed to change to make it more affordable and best fit the rapidly changing healthcare system.
"We are about to start work on developing an alternative, more flexible, strategy to achieve this as soon as we can," he said.
The trust said it remained committed to the strategy of moving services to the General Hospital, but was now working on alternative schemes.
The MP for Essex North, Bernard Jenkin, told BBC News: "This project has been binned I suspect at substantial cost because of all the consultancy fees, planning, architects everything would have gone down the drain."
A spokesman for Essex Rivers Health Care Trust told BBC news that of the £3m already spent £2.4m had come from the Department of Health.
Another £600,000 had come from the trust itself and not all the money spent would go to waste, he added.
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