Plans had been bogged down in rows over cost and location, with accusations that health secretary Patricia Hewitt was 'gerrymandering'. Ms Hewitt was alleged to have intervened to favour a site in a Labour constituency.
But last week the proposals were scrapped. Merton and Sutton primary care trust chief executive Caroline Taylor, who chairs the steering group of trusts and PCTs under the Better Healthcare Closer to Home umbrella, said 'capital and revenue costs are now not affordable'.
Local service changes had reduced the projected number of patients that would use the new unit. The centre's feasibility was further damaged when NHS London introduced a£250m cap on capital spending.
Now the consortium intends to revise plans for community services and a smaller general hospital serving around 300,000.
Geoff Martin, head of campaigns at pressure group Health Emergency, said: 'Seven years of reviews and consultations have cost us millions in wasted fees for management consultants and planners and have got us nowhere. There is no site for a new hospital, no money to build it and no-one held to account for this expensive shambles.'
But Ms Taylor responded: 'It's not back to square one.
'Our proposals are based on the direction of travel in primary care, more early intervention and prevention,' she said.
A Merton and Sutton PCT spokesman said cash spent on planning had not been wasted as the work would inform new plans.