Supermarket giant Morrisons has pulled out of development plans for the former Summerhill Academy site in Aberdeen.
The UK chain demolished the school building off Lang Stracht in February 2012.
However, the site has remained empty since then.
Court actions launched by rival Tesco, which has a store nearby, caused delays to the plans.
Today, the company issued a joint statement with landowner Aberdeen City Council.
A Morrisons spokesman said: “Regrettably we have decided to withdraw from the agreement with Aberdeen City Council to develop the Lang Stracht site.
“This has been a difficult decision for us after the level of investment and time we have committed to the site so far.
“However, we believe that it is better for the local community that we withdraw from the process at this point and allow the site to be developed for an alternative use.”
An Aberdeen City Council spokeswoman added: “We are disappointed by the outcome.
“This gives us an opportunity to undertake a full review of the site and options available to the council and report back to the appropriate committee at the earliest opportunity.”
The spokeswoman said it was too early to say what the preferred option for the site would be.
Aberdeen Donside MSP Mark McDonald said the news will come as a blow to the community, as the development was expected to create about 300 jobs.
He said: “It appears from the joint statement that Morrisons are not looking to land block the site, and that is encouraging.
“The most important thing is that the community must be involved in terms of how the site is now developed. They are the people who have been messed about through this whole process and they have to be involved, it can’t just be left up to the council.”
Labour finance convener Willie Young said the administration wanted to make sure that officials identified options for the site “as quickly as possible”.
He said: “Whilst it is disappointing, it gives us fresh opportunities that we can look at.
“Now part of that might be housing, it might be that we re-market the site. We can ask our officers to bring some of those things forward.
“I think the worrying thing was that Mark McDonald got people’s hopes up falsely, and he will have to account for that. We were in negotiations with (Morrisons), and it has been a commercial decision and we have to respect that.”