Health secretary Alan Johnson declared there would be no third wave of ISTCs during his first appearance before the Commons health select committee last week.
He told MPs: 'There won't be a third [wave], I am announcing today. We will instead move towards greater local determination, with primary care trusts taking the procurement decisions on behalf of their patients and there is no need for that to be run from Whitehall.'
Shadow health secretary Andrew Lansley claimed the announcement marked a 'clear break from Blair's public service reforms'.
The Confederation of British Industry said it was 'alarmed by this apparent shift into neutral', while union Unite said Mr Johnson was 'resisting' use of the private sector.
But NHS Confederation director of policy Nigel Edwards said he was 'not particularly surprised' by the news and it had little bearing on future policy.
'I would be inclined to see it as a pragmatic response to what the current need for capacity is rather than any major shift,' he said.
Independent providers also insisted the announcement did not signal an end to their involvement in the health service.
Nuffield Hospitals associate director Matthew James told HSJ he did not see the move as a change of direction and remained optimistic about the future.
'There was never any serious discussion of the possibility of a wave three and the announcement has been interpreted as far more significant than it is,' he said.
Giving patients a choice of independent providers was central to the future use of the private sector, he said.
His view was echoed by BUPA development director David Loasby. 'Choice will drive the future size of independent sector provision,' he said.
Dr Jonathan Fielden, chairman of the British Medical Association's central consultants and specialists committee, said it had previously 'been signalled' that wave three would not be going ahead.
Yet he said the move heralded a move 'away from this total belief in the private sector which the previous regime had'.
Former health adviser to Tony Blair Julian le Grand said the move, while not surprising, was a mistake, adding that he was 'not convinced' there would be enough capacity to hit the 18-week target.
Giving evidence to the select committee last week, health secretary Alan Johnson and Department of Health permanent secretary Hugh Taylor said they expected to approve more wave two schemes in the coming months but could not say how many.
Shift into neutral: history of the ISTC programme
- December 2002: Department of Health announces independent sector treatment centre programme.
- September 2003: The DoH names the first set of preferred bidders for wave one.
- October 2003: The first centre opens in Northamptonshire.
- March 2005: Wave two of the programme launched with a guarantee that companies would not be paid for work not carried out, as had happened in wave one.
- April 2006: Seven of the 24 wave two schemes scrapped.
- January 2007: National data on quality of ISTCs is 'incomplete and of poor quality', says leaked Healthcare Commission study.
- March 2007: A£257m contract with Atos Healthcare for the North West and South West is delayed by the DoH after concerns about work carried out for eight primary care trusts in the North West.
- June 2007: Plan to house a£35m ISTC at Queen Mary's Hospital in Sidcup cancelled by the DoH.
- July 2007: Health secretary Alan Johnson announces wave three will not go ahead and the termination of the Atos contract. DoH confirms to HSJ that negotiations are ongoing for 13 wave two schemes. Four have opened and one is near financial close.