In 2014, Medway Council granted planning permission to the scheme for Lodge Hill, near Chattenden on the Hoo Peninsula.
This came despite the site being designated as a Site of Special Scientific Interest (SSSI) by government environment adviser Natural England in 2013 due to the presence of nightingales.
That designation prompted Medway’s core strategy to be declared unsound because of its reliance on the site for new homes provision.
In February 2015, planning minister Brandon Lewis called in the decision for determination because of "a significant number of requests" from residents, local MPs and ornithologists.
Developer Land Securities pulled out of the development in September 2015.
A public inquiry was scheduled to take place in March 2018.
But now, Medway Council has said that developers the Defence Infrastructure Organisation - the Ministry of Defence’s property arm - and government housing and regeneration quango, the Homes and Communities Agency, have decided to withdraw the planning application and therefore the public inquiry will not go ahead.
Alan Jarrett, leader of Medway Council, said: "I am appalled this important scheme is going back to the drawing board, further delaying a project which would create jobs and much needed homes for the area. A succession of agencies have let the people of Medway down by constantly delaying this important site which has huge potential.
"A great deal of work has gone into establishing that the site is a sustainable location for a new development, and owners and developers need to continue to push forward with providing high quality, energy efficient homes for our existing residents, their families in the years to come and those looking to relocate here – and not forgetting the extensive employment opportunities the site could offer residents.
"While I am hugely disappointed that the current scheme for Lodge Hill has been withdrawn, I now eagerly await the new plans expected to be put forward by the applicants in the coming months. It’s time for agencies to get off the fence and bring this site forward for development."