Business leaders expressed sadness at the temporary abandonment of the Bath Press scheme.
Ian Bell, executive director of Bath Chamber of Commerce, said the move was the latest in a string of projects in the city which had been delayed or abandoned.
"It is sad to hear that another development is not going ahead. While members of the chamber of commerce were not particularly euphoric at the prospect of a Tesco supermarket on the Bath Press site, they were supportive of the development of what is a redundant industrial area.
"We were similarly keen to see the Dyson scheme go ahead, we hoped for a Bus Rapid Transit route, an eastern park and ride and a new stadium for the rugby club.
"Part of this is about developing and growing the local economy, but equally important is giving a message to the outside world that this is a great place to do business. Bristol's Enterprise Zone will shortly start to emerge and it is bound to be a magnet for inward investors. Stories like this one are not helpful when Bath is facing up to that sort of competition."
B&NES Council insisted the city was very much open for business.
"Bath and North East Somerset Council has an excellent track record in supporting the delivery of ambitious development projects with the private sector. These include the £360-million redevelopment of SouthGate, £400-million regeneration of Bath Riverside, Milsom Place, City of Bath College's landmark building and the Holburne Museum."
Local councillors have welcomed Tesco's decision. Councillor Will Sandry (Lib Dem, Oldfield) said: "This was always the wrong site because it was too close to Moorland Road, and the traffic at the Windsor Bridge/ Lower Bristol Road junction would have been horrendous."
Councillor June Player (Ind, Westmoreland) said: "I think Tesco realised they had bitten off more than they could chew."
Former Moorland Road traders' leader Barry Cruse said: "I am absolutely delighted that common sense has prevailed. It was quite simply the wrong place for a large supermarket."
PUBLICATION: Thsi is Bath - 15th March 2012