The Olympic stadium deal with West Ham United and Newham Council has collapsed, sports minister Hugh Robertson has confirmed.
Legal challenges by Tottenham Hotspur and Leyton Orient, plus an anonymous complaint to the European Commission, have led to fears that court action could drag on for years while the stadium remains empty.
The stadium will now remain in public ownership and be leased out to an anchor tenant following a new tender process by the Olympic Park Legacy Company (OPLC). West Ham vice-chairman Karren Brady confirmed the club will bid again to become a tenant at the stadium.
Mr Robertson said: "The key point is the action we have taken today is about removing the uncertainty. The process had become bogged down in legal paralysis.
"Particularly relevant has been the anonymous complaint to the EC over 'state aid' and the OPLC received a letter from Newham Council yesterday saying because of the uncertainty they no longer wanted to proceed. That was the straw that broke the camel's back and we thought it better to stop it dead in its tracks now.
"We know there is huge interest in the stadium out there from private operators and football clubs and, crucially, we remove any uncertainty."
Some £35 million already earmarked under the Olympic Budget will be used to transform the stadium after the Games. Prospective tenants will then be asked to bid for the stadium, with the running track remaining in place.
Mr Robertson added: "This is not a white elephant stadium where no one wants it. We have had two big clubs fighting tooth and nail to get it. The new process will be more like how Manchester City took over the Commonwealth Games stadium, which is regarded as a leading example of how to do it."
The tenants would pay an annual rent to the OPLC, which should prove to be less costly for the likes of West Ham.
The move will also remove uncertainty over the stadium ahead of London's bid for the 2017 world athletics championships, although that was not a major consideration in the decision to abandon the current deal.