Supermarket giant Tesco is to sell the Midlothian Garage site in Holmfirth.
The firm bought the plot just outside of the town centre in a failed bid to build a superstore.
Tesco had hoped to build a store with 2,137m² of shopfloor space – but the proposal was rejected by Kirklees Council over traffic concerns.
The council’s reasons for rejecting the plan were upheld by the Planning Inspectorate during an unsuccessful appeal by Tesco last year.
Now the supermarket chain, which has been beset by financial scandal and plummeting profits, has announced it is selling the site and withdrawing from the Holme Valley.
Tesco spokesman Mark Thomas said: “We recognise that some people will be disappointed with this decision and we’re very grateful for the support we’ve received in the past for our plans.
“The shopping habits of our customers have changed in recent years with more people choosing to shop online and in convenience stores.
“In light of this and following the appeal decision, we have reviewed our proposals for Holmfirth and have made the difficult decision to not build a new store.
“The community can still shop in our great and very popular existing Huddersfield and Penistone stores and we will now look to sell the former Midlothian site on New Mill Road. We’ll be sure to keep the community updated on the future of the site.”
Mr Thomas added that Tesco would not be applying to build any stores in Holme Valley for the foreseeable future.
However only last week the supermarket said it was committed to building a new store on the site of the current sports centre in Huddersfield.
In June, Sainsbury's was given planning permission to build a Sainsbury's Local convenience store at the Riverside Shopping Centre, Huddersfield Road, Holmfirth.
Some valley residents are hoping the Holmfirth site will be used for a hotel or affordable homes.
Margaret Dale, of Keep Holmfirth Special, fought Tesco’s plan.
She said: “We’ve always said it would be suitable for alternative uses. There’s a real need for smaller, affordable housing or maybe a mixture of business facilities and housing.
“We desperately need a hotel.”
Andrew Bray, who owns Andrew’s greengrocer in Holmfirth, added: “We’ve got a fantastic range of shops here and when Sainsbury’s come people will have a decent choice. Tesco have realised they’ve missed the boat.
“A good suggestion would be a hotel. There’s a real shortage of beds in the area.”