Gordon Brown's plan for eco-towns was unravelling last night, with Tesco withdrawing from one of the proposed greenfield developments.

The supermarket chain, which owns 80 per cent of the land, was providing most of the financial backing for an eco-town with 7,000 homes at Hanley Grange, near Cambridge. But the project has been heavily opposed by local campaigners and all the surrounding councils. Yesterday Tesco pulled the plug.

It means that a quarter of the developers on the Government's shortlist of 15 eco-towns have now abandoned the schemes, which have prompted widespread protests.

Ministers have deferred until the new year the decision on which projects will proceed. But it is likely that only three or four will be given the go-ahead for the first phase. The developments, of 5,000 to 20,000 homes, are supposed to include a high percentage of affordable homes, with zero-carbon flats and houses surrounded by green spaces. Car use is to be curtailed through both incentives and restrictions.

The economic climate has caused some firms to withdraw; others have complained that the uncertain bidding process is expensive and risky.

Tesco maintained last night that it would try to press ahead with a conventional development on the same site by starting afresh through the East of England regional strategy plan. However, the chances of getting this through are slim.

Insiders privately admitted that the cost of devising detailed plans for an eco-town that might in the end not be accepted by the Government was too “high-risk”. One said that the bidding process alone would cost Tesco millions - with no guarantee that its proposal would be accepted.

Tesco's decision delighted the Stop Hanley Grange campaign group, which had been planning to hold a protest rally on Monday attended by local MPs. Last night the organisers said that the event would be a celebration instead.

Julie Redfern, chairman of the group, said: “We are delighted that Tesco have seen sense, and this is a victory for local democracy.”

Grant Shapps, the Shadow Housing Minister, said: “Eco-towns started off as an idea that sounded good, but Labour's incompetent handling of the project has led to distrust amongst the public and developers alike. Now, even those who are behind the applications have decided that it is better to go it alone and forget the government-sponsored eco-con scheme.”

The Department for Communities and Local Government insisted that Tesco's move would not derail the project. “The whole point of developing a long list of potential locations was to get down to a shorter final list, and we remain committed to announcing this final shortlist of up to ten potential locations early in the new year,” a spokesman said.