The seven councils involved failed to come to an agreement.
The deal included a commitment to review all land held by the public sector, to identify surplus land for housing and economic use, and the region woul have receive greater planning powers for compulsory purchase orders.
The region was also due to develop a North East planning development framework to deliver an increased number of houses.
Seven councils were involved in the deal but four – Sunderland, Gateshead, Durham and South Tyneside – voted against the deal earlier this week.
The communities secretary said he decided to pull the plug on the deal because the councils couldn’t come to an agreement.
A House of Commons debate planned for Monday, to enable elections in 2017 for an elected North East mayor, has now been cancelled and the legislation has been withdrawn.
A separate devolution deal has been agreed by another group of councils in the nearby Tees Valley region and residents are set to vote for a mayor in May 2017.