Lugano Property Group began High Court proceedings in September last year against Northumberland County Council, its leader Peter Jackson, and two other councillors.
The developer was behind plans for Dissington Garden Village, a proposed 2,000-home garden village north of Newcastle, which initially attracted the support of the council but fell out of favour after a change of administration in 2017.
Lugano then made a series of claims about alleged misconduct at the authority, including that Jackson had sought to influence a senior planning officer to reverse his professional opinion on the garden village scheme. The council denied the allegations.
However, this week the developer announced that the court case was being dropped by the new owners of the site and the garden village development vehicle has now been sold.
Jackson described the move as a "humiliating admission of defeat", but Lugano said it stood by its claims.
The firm's planning application for the garden village was withdrawn in January.
Richard Robson, chairman at Lugano Property Group, said: "These are the decisions of the new owners of the estate and associated company.
"Notwithstanding this, we stand fully behind the claims made in both the legal proceedings and our previous complaints to the council concerning the named individuals.
"As yet, neither of these have been suitably or independently investigated, yet significant public monies have been expended to protect their unlawful conduct and frustrate due legal process."
Northumberland County Council confirmed it has been notified that the legal case against it has been dropped.
In a statement, Jackson said: "This capitulation has to be the most humiliating admission of defeat by Lugano.
"All along, we said that there was no foundation for their wild and unsubstantiated allegations against councillors, council staff and the county council itself, all of whom have just been carrying out their proper functions.
"Despite all of the bullying tactics and threats and all of the money thrown at this huge development, Lugano have finally come to the conclusion that their planning case is so weak that it has little chance of progressing through an impartial and fair planning process and further that they had little chance of progressing a flimsy and unfounded legal action against us.
"This Dissington scheme was always a brazen attempt to build on hundreds of acres of valued green belt, changing our countryside for ever. It never did meet all of the criteria to qualify as a garden village proposal.
"Not only will we be pursuing Lugano Dissington Ltd for the very substantial legal costs which have been incurred in defending against their ridiculous claims but the very least we deserve is a clear and unreserved apology for all of the personal upset they have caused not just to ourselves but to the wider community of Ponteland."