London's 2012 Olympic bid team has withdrawn its incentives package following an investigation into whether the promises contravened bidding rules.
The International Olympic Committee announced on Friday that it was happy with New York's incentives package.
But London withdrew its offer, which included free flights for athletes and financial help for Olympic teams.
The move follows a warning from IOC president Jacques Rogge that rivals should not enter into a bidding war.
And it eliminates the need for the IOC's ethics commission to decide whether London's promises went beyond those made in its original bid file.
Any censure at this late stage in the bidding process would have been an embarrassment ahead of the final IOC vote in Singapore on 6 July.
"In light of president Rogge's remarks and the importance of London 2012's commitment to working in close co-operation with the IOC, we feel it is in the best interests of the Olympic movement to withdraw the charters at this stage," a London 2012 statement said.
The issue surfaced during the Sport Accord conference in Berlin this week.
The London and New York bid teams revealed a number of benefits they planned to offer sports federations, athletes and national Olympic committees (NOCs) if they were awarded the Games.
London's £15m incentives package included free return flights to the Games for the 10,500 athletes, and £26,000 for each NOC to help them meet the cost of training camps.
New York said it would help minor sports market themselves throughout the seven-year build-up to the Games.
The IOC introduced strict rules in the wake of the Salt Lake City corruption scandal, and cities can be punished for any promises which do not feature in their original bid documents.
The IOC told New York's bid team that it was satisfied the marketing plan had been in the bid file, and had been discussed when the IOC's evaluation commission visited New York in February.
It had been expected to make a statement next week about London's incentives, which the London team insisted had been accounted for in its bid book.
Rival bidders Paris, Madrid and Moscow also presented their plans in Berlin, but they did not reveal any major incentives packages.