In a keenly awaited announcement, Prime Minister Edouard Philippe said the "stiff opposition" made it impossible to proceed with the proposed new airport near the city of Nantes, adding: "The project is therefore abandoned."
The airport project had long been vehemently opposed by local residents and environmentalists defending precious moors and woodland.
The announcement will therefore please environmentalists but anger many business leaders and local politicians who insisted it was vital to boost the local economy.
"By this decision President Emmanuel Macron is trampling on legal procedures and decisions, he's trampling on our local organisations and the votes of local residents," said a furious Philippe Grosvalet the president of an umbrella group of organisations who backed the new airport.
He promised "negative consequences" for Emmanuel Macron.
The mayor of Nantes Johanna Rolland said the decision amounted to "betrayal" of western France and a "denial of democracy", referring to the 2016 referendum which had backed the plans.
For his part the Prime Minister Philippe accepted that western France needed a solution to boost economy and "connect it to the rest of France and Europe".
The PM announced that for the time being, the existing airport at Nantes would be revamped slightly in order to accommodate more passengers, the nearby airport at Rennes would also be extended and the government would look at improving rail links between the two big cities in the west to airports in Paris.
He announced that a consultation on whether the existing runway at Nantes airport can be extended would now take place.
Between 200 and 300 activists have been camped at the site some 20 kilometres (12 miles) north of Nantes in a protest that dates to 1965 when the project, now projected to cost nearly one billion euros (dollars), was first mooted.
They will now be cleared and riot police are ready to move in.
The airport was first approved in 1970, but mothballed because of the oil crisis.
Since Socialist prime minister Lionel Jospin revived the plan in 2000, it has been the subject of heated public debate and dozens of legal challenges.
Dairy farmers resisted eviction, while environmentalists said the project threatened important wetland supporting dozens of protected species of birds as well as newts and voles.
In 2009, anti-capitalist activists from across Europe joined the dairy farmers and residents occupying the site.
There have been several violent standoffs as riot police tried to dislodge the squatters, some of them living in treehouses.
In 2012 then prime minister and current Foreign Minister Jean-Marc Ayrault -- who hails from Nantes -- set up a "dialogue committee" that found in favour of the project while strengthening environmental safeguards.
Then in June 2016, voters in the Loire-Atlantique region approved the project in a referendum, the "Yes" vote winning with 55 percent.
"The people have voted, justice has ruled: work begins now!" Philippe Grosvalet, the region's Socialist president, said in a statement at the time.
In November last year a court cleared the way for work to begin on an airport.
The then Socialist Prime Miniser Manuel Valls hailed the ruling following years of legal battles and sometimes violent protests over the plan, saying it "proves once more that the project is perfectly legal and complies with current regulations."
The court said planned steps to compensate for the environmental impact of the project were adequate, and that the alternative of overhauling an existing airport serving the region, Nantes-Atlantique, was not viable.
But opposition continued and when Emmanuel Macron was elected in May 2017 he and his Prime Minister Edouard Philippe vowed to take their time and consultall parties before announcing a decision.
That decision was made public on Wednesday and although environmentalists will be thrilled, business leaders in western France will be furious.