Manx Utilities has withdrawn plans to create a regional sewage treatment plant at Glenfaba.
It comes after proposals for it were recommended for rejection by the independent planning inspector.
However, the organisation says the strategy to create regional treatment facilities at Peel and Garff will continue.
MUA Chairman, Tim Baker MHK, says: "Whilst we are obviously disappointed with the Planning Inspector’s conclusions, we will take the opportunity to reflect on the findings of the report in detail.
"Recognising the reasons for the Inspector’s conclusions, the possible emergence of previously unavailable sites, and the evidence submitted by interested parties at the hearing particularly in relation to tree and habitat loss, Manx Utilities has taken the decision to withdraw its current application.
"However we remain determined to bring forward solutions which will bring to an end the disposal of raw sewage into both Peel and Laxey bays."
MUA adds consultants will now be appointed to work alongside the company to undertake studies ahead of submitting a further planning application in the future.
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