But fellow developers Lend Lease and town hall bosses have pledged the scheme is not dead – and have vowed to fight on at a public inquiry into its future.

Grosvenor bosses told Preston Council they were pulling out of Tithebarn following a restructuring of the business which means it will not be pursuing "large, long-term, city centre regeneration schemes".

Business chiefs have described the news as a "huge blow" for Preston's ambitions – but council bosses say it will now allow them to move forward with purpose.

Preston Council chief executive Jim Carr said: "Grosvenor's desire now is to withdraw from the partnership over a period of time.

"Grosvenor has decided to redirect their business and it has nothing to do with the quality of the opportunity here, which remains very strong.

"We are sorry this long relationship has gone. What we have now in Lend Lease is a partner that really does want to do this scheme. They want to make it work.

"They want to know what was said to the minister (to trigger a public inquiry) and they don't want the bus station to be listed. If we can get answers to those questions we can work again towards the public inquiry."

Council leader Ken Hudson added: "We are absolutely delighted with the attitude of Lend Lease."

Grosvenor's withdrawal will be gradual and will likely only be fully completed next year because the company has "obligations" to the scheme and the council under a development agreement.

The firm has ploughed a large amount into studies, consultants and designs around Tithebarn and has bought up a number of properties, including St John's Centre.

Under the terms of the development agreement, Grosvenor, along with Lend Lease, reimburse the city council for any money spent on the scheme.

Mr Carr said Grosvenor was "fully up to date" with those payments. The firm will remain part of the scheme until Lend Lease are in a position to become the sole partners.

He added: "At the moment those costs are quite low-level but at the moment, for example, we have agreed to have short-term rents in the Guild Arcade and we are losing money because of that so they are compensating us for it."

Grosvenor is now likely to look to sell properties like the St John's Centre to the city council and Lend Lease. Mr Carr also added there are no issues around the lease for the Tithebarn area with Grosvenor because no development had taken place there.

But Frank McKenna, chairman of private business lobby group Downtown Preston in Business, said: "I think it is really bad news."

"It is no good pretending this is not a significant blow. From a confidence point of view, in terms of people's belief that Tithebarn will ever happen, this is a further blow."

Babs Murphy, chief executive of the North and Western Lancashire Chamber of Commerce, said: "This is a massive blow for Preston. Despite this setback we're confident that with the support of Lend Lease, the city council, and the business community it will happen.

"The scheme is too important for the city not to go ahead."

But Preston MP Mark Hendrick said having only one developer will make it "a lot easier in negotiating terms".

"Lend Lease are new to the scheme and a lot more upbeat and enthusiastic," he added.

John Irvine, executive director for development at Grosvenor said: "Following a strategic review Grosvenor is refocusing its development activity on building a larger portfolio of medium-sized, retail, residential, and mixed-used projects rather than concentrating on a few large, long-term, city centre regeneration schemes.

"We were determined to see the Tithebarn scheme through to planning consent, which was approved recently, and we wish Lend Lease and Preston City Council every success."

Speaking on behalf of the Preston Tithebarn Partnership, Richard Coppell, of Lend Lease, said: "We wish to continue working with Preston City Council and believe in the potential of both Preston and the Tithebarn scheme."

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