London Mayor Boris Johnson has quashed the proposed rise in congestion charge for vehicles deemed the most polluting.
Former mayor Ken Livingstone planned to raise the daily levy from £8 to £25 from October, prompting car maker Porsche to bring a legal challenge.
Mr Johnson pledged in his election manifesto to scrap the £25 charge and said the move would save legal costs.
The mayor has also scrapped a proposal to allow some low emission cars free entry to the congestion charge zone.
Mr Livingstone said ditching the charge was a "further blow" to tackling climate change.
Under Mr Livingstone's plans cars emitting high carbon dioxide (CO2) would have paid £25 to enter the zone whereas cars with the lowest emissions were to get a 100% discount on the charge.
Following the proposals in February, a study said the plan may encourage smaller vehicles to enter the zone, increasing congestion and pollution.
Mr Johnson said abandoning the proposal would save Transport for London (TfL) £10m earmarked for the scheme.
He said his decision was in keeping with his aim to achieve a "fairer and more effective" congestion charge.
"I am delighted that we have been able to scrap the £25 charge, which would have hit families and small businesses hardest.
"I believe the proposal would actually have made congestion worse by allowing thousands of small cars in for free," he said.
Andy Goss, managing director of Porsche Cars Great Britain, said: "We were always confident that our legal case was right and that we would win in the end.
"The charge was clearly unfair and was actually going to increase emissions in London."
TfL has been ordered by the High Court to pay Porsche's legal costs with money being donated to the youth charity Skidz.
A spokeswoman for the RAC Foundation said: "When the charge was brought in it was to tackle congestion and not pollution.
"So we welcome the fact the £25 charge has been cancelled and that the scheme has gone back to its original purpose of tackling traffic."
Baroness Jo Valentine, chief executive of business group London First, said: "Thank goodness Boris has made TfL see sense on this one.
But Mr Livingstone said the decision was "a further blow to London as a ground-breaking city to tackle climate change and improve the environment".
He added that rather than saving money "London will lose £30-£60m expected annual revenue from the scheme".
And Jenny Jones, from London's Green Party, said: "The London mayor has put the interest of the few above the needs of the planet.
"We know that green taxes work. Last year, Londoners bought more low emission cars than gas guzzlers for the first time ever."