Electricity was intended to be brought some 4,000 kilometres (2,485 miles) from north Africa via undersea cables to supply seven million UK households.
But a ministerial statement said: "The government has concluded the project does not clearly align strategically with the government's mission to build homegrown power here in the UK."
It also cited high risks in terms of delivery, operation and security.
British company Xlinks, which is in charge of the project, had sought government support with a 25-year contract guaranteeing a fixed price for the electricity, supplied by solar and wind installations in Tan-tan province in Morocco's south.
Company chairman Dave Lewis said Xlinks was "hugely surprised and bitterly disappointed" at the government decision to scrap the scheme, which had been deemed a "nationally significant project" in 2023.
"We are now working to unlock the potential of the project and maximise its value for all parties in a different way," he added.
According to Xlinks, the project would have lowered wholesale electricity prices by nine percent and reduced the UK sector's carbon emissions by about 10 percent.
Britain is one of the leading players in renewable energy in Europe due to onshore and offshore wind power but still lags Scandinavian countries, which draw a large part of their electricity from wind and hydroelectric dams.
The country has set a target to reduce its greenhouse gas emissions by at least 81 percent by 2035 compared to 1990 levels and is aiming to be carbon neutral by 2050.
The government recently pledged more than �30 billion ($41 billion) ro relaunch nuclear energy as an essential step for energy security and its climate ambitions.
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