The BBC Trust has rejected a £68m plan for a network of online new services.
The plans had already been criticised by local newspaper publishers as well as Tory leader David Cameron who weighed into the debate earlier this week.
Trust chairman Sir Michael Lyons delivered this verdict: "It is clear from the evidence that, although licence fee payers want better regional and local services from the BBC, this proposal is unlikely to achieve what they want".
"We also recognise the negative impact that the local video proposition could have on commercial media services, which are valued by the public and are already under pressure."
He also said that the Beeb should concentrate on improving the services its already provides.
"We would expect BBC management to consider carefully the conclusions of this public value test, before returning to us with new proposals", he concluded.
Newspaper Society director David Newell said: "We are pleased that the BBC Trust and Ofcom have responded to the industry's concerns and rejected the BBC local video plans for the time being. This is a proposal, which the BBC should never have made and would have severely reduced consumers' media choice and the rich tapestry of local news and information provision in the UK".
Newell added: "We will be seeking an urgent meeting with the secretary of state to discuss the future roles of the BBC, BBC Trust and Ofcom and the current challenges facing regional and local media. We must be on our guard to ensure that the BBC is not allowed to expand its local services by alternative means".