The public inquiry into the £140 million Canal Corridor scheme in Lancaster has been adjoured suddenly.
The development, which would include retail, office, cultural and open space, was given the go-ahead by city councillors in October but was called in in January by the then secretary of state Hazel Blears.
Developer Centros withdrew from the inquiry in March to avoid potential costs of up to £1 million, which it said would jeopardise the project's delivery and community benefits. Lancaster City Council was defending the plans on its own.
But yesterday the council announced that it would not take "any further active part in the inquiry".
In a statment the council said: "Through no fault of its own the City Council finds itself in a position in which it strongly supports the fundamentals of the proposed development, but as a result of matters which have arisen since the consideration of the Application by members, there are serious questions about the details of the proposed development.
"It deeply regrets that no case was properly advanced by Centros which might very well have addressed the concerns which have arisen."
The council said the "forensic spotlight of the inquiry process" had identified issues in the detail of the proposed development which need to be addressed in order to permit such a development to come forward.
These include concerns over the demolition of existing buildings and theaffect a planned bridge would have on the townscape.
Centros is yet to comment.