Around 6,000 people had signed a petition to keep the Bradgate ward at Loughborough hospital open.
Health managers have now confirmed its closure and said they would be looking at providing respite care through the independent sector.
Carers said the news was like "losing the light at the end of the tunnel".
Andrew Clark, chief executive of the Charnwood and North West Leicestershire Primary Care Trust, said: "We're not saying that respite care shouldn't happen, we just don't think it's most effectively provided in a hospital bed.
"The Bradgate ward has provided a great service to people over the years but what we're wanting to do is make use of the independent sector and work with social services, which also does a lot of work in this area."
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