Prime Minister Jacinda Ardern and Transport Minister Phil Twyford are "disappointed" consensus could not be reached on Auckland light rail with New Zealand First.
Twyford announced on Wednesday that Cabinet had agreed to end the twin-track Auckland light rail project for now as Government parties "were unable to reach agreement".
The decision was made "despite extensive cross-party consultation", and the future of the project - estimated to cost upwards of $6 billion - will now be decided by the Government following September's general election.
Ardern told reporters she was disappointed because it was a policy she had campaigned on to help ease traffic congestion in the country's largest city.
The promise to build light rail from downtown Auckland to the airport within a decade was made by Ardern in her first policy announcement and campaign rally ahead of the 2017 election.
"Ultimately, this is a democracy and we were unable to reach an agreement amongst the parties and so this is now where it had landed," Ardern said.
The Prime Minister said the Government is unable to pass policy or legislation without all three political parties - Labour, New Zealand First and the Greens - being in agreement.
"I am well used to over these past three years governing a Government of three different parties of three different positions. We've made remarkable progress on quite difficult areas - this just happens to be one where we were unable to form consensus."
Twyford told reporters he worked hard on getting light rail across the line and was disappointed New Zealand First could not be convinced to support it.
"I'm sick of sitting in traffic. I know that what Auckland needs is a modern rapid transit system - and light rail or a light metro system would deliver that," he said.
"Whether it's capital gains tax, industrial relations reform, or light rail, this is a coalition Government - you've got to have all three parties agreed. New Zealand First has got their views about it and I always hoped and believed we would be able to convince them finally to support it."
Twyford said despite failing to deliver on KiwiBuild promises when he was Housing Minister and not meeting expectations on light rail as Transport Minister, he's proud of what he has been able to get across the line.
"I've always acknowledged that we didn't get the early numbers with KiwiBuild that we hoped we would but I'm very proud of what I achieved."
The proposal to build light rail from Auckland CBD to the airport is set out in the confidence and supply agreement between Labour and the Greens.
Green Party co-leader James Shaw, when asked if New Zealand First is undermining the Greens' agreement with Labour, said, "We went into this Government in good faith and we've upheld our side of the bargain."
He said pointed out that light rail is in the Government Policy Statement 2018, which New Zealand First voted for. It sets out the Government's transport policies and spending on transport over a 10-year period.
Shaw seemed to find it ironic that New Zealand First has been fighting to defend commercial rent contracts when it "can't even uphold its coalition agreement".
"I think any party should be mindful about that going into Government next term."
New Zealand First leader Winston Peters denied he was blocking light rail. He appeared to be concerned about the cost and the contract potentially going to an overseas company.
"I'm not blocking light rail or any other rail. As a fiscal proposition, with offshore proprietorship, it did not work," he told reporters. "The reality is that every programme has got to stack up, has got to fiscally sound and it's got to work.
"We signed an agreement with the Labour Party. The Labour Party signed an agreement with the Greens. That's their concern - not ours... Any allegations that we are somehow contractually bound by a contract we are not party to is 101 dribble."
National leader Todd Muller said light rail will now join KiwiBuild as the "prime examples" of the Government's "epic failure to deliver on its promises" to voters.
"Auckland light rail was Jacinda Ardern's first campaign promise as Labour leader in 2017 and was meant to be up and running between the CBD to Mt Roskill by 2021. But nearly three years on, the project has gone backwards."