The supermarket giant said the decision was part of its strategy of reducing the number of large stores opened each year as a result of "changing customer shopping habits".
"After careful consideration we have therefore decided not to pursue a new large store in Margate," said a spokesman.
Tesco had planned to build a 7,500 square metre, 24-hour store as part of the redevelopment of 19-storey tower block Arlington House and surrounding properties.
Secretary of state Eric Pickles granted final approval for the development in June 2013 following a public inquiry the year before at which a written submission by government adviser Mary Portas described the scheme as "a disturbing threat to the regeneration of Margate".
Campaign group Friends of Arlington Margate then launched a judicial review.
Campaigner and local guest house proprietor Louise Oldfield, having failed in a High Court challenge on the grounds that Pickles failed to fully consider the impact of the scheme and wrongly concluded there would be no significant environmental impacts, was given the go-ahead in July this year to take her legal challenge to London’s Court of Appeal.