The London Fire and Emergency Planning Authority has voted to terminate its 6-year-old agreement with Native Land for the redevelopment of the former fire brigade headquarters on Albert Embankment.
LFEPA announced its deal with Native Land in 2007 but in the following six years the partnership has failed to gain consent for redevelopment of the site.
The fire authority stood to gain nearly £42 million from the sale of the site in a transaction which was conditional on gaining planning permission.
The Florian Place scheme – which included retention of Lambeth Fire Station on the site – was designed by Lifschutz Davidson Sandilands.
Local opposition to the development centred on the impact of the proposed new buildings on daylight and sunlight levels in adjacent homes, including those at Whitgift House.
Nearly 300 people signed a petition calling on the fire authority to drop Native Land and find a new development partner.
Fire authority officers this week presented elected members with a report asking them to decide whether to work with Native Land to submit another planning application or to start the process again from scratch.
Finance chief Sue Budden told Tuesday's meeting of the fire authority that the decision was "finely balanced" and either course of action would be justifiable.
The authority unanimously backed a motion tabled by Cllr Peter Truesdale (Lib Dem, Bishop's ward) and seconded by Val Shawcross AM (Labour, Lambeth & Southwark) instructing officers to terminate the Native Land agreement.
Cllr Truesdale said it was in the authority's "fiduciary best interests" to seek a new deal.
Ms Shawcross described the prime riverside site as a "fantastic asset", explaining that the wider regeneration of the Vauxhall, Nine Elms and Battersea area had moved on considerably since the 2007 deal and land values were likely to have increased.
"It's time we tested the market seriously again," she said.
Speaking after the meeting, Cllr Stephen Morgan (Labour, Princes ward) told the SE1 website: "I'm glad that LFEPA has listened the the local community about its choice of developer.
"I hope we can get to a situation where we have a new developer and a new plan which has the full support of local residents."