Rupert Murdoch's News Corporation has announced that it is dropping its planned bid to take full ownership of satellite broadcaster BSkyB.
It follows a scandal over phone hacking at News Corp's UK newspaper group.
News Corp deputy chairman Chase Carey said the bid had become "too difficult to progress in this climate".
The move came just before MPs debated a motion supported by all major parties calling on Mr Murdoch to scrap the bid. The motion was approved without a vote.
The scandal has already led to the closure of the UK's biggest-selling newspaper, the News of the World.
On Friday, Prime Minister David Cameron announced details of a public inquiry into phone hacking and media regulation.
Market reaction
"We believed that the proposed acquisition of BSkyB by News Corporation would benefit both companies, but it has become clear that it is too difficult to progress in this climate," said News Corp deputy chairman and president Chase Carey in a statement.
"News Corporation remains a committed long-term shareholder in BSkyB. We are proud of the success it has achieved and our contribution to it."
BSkyB's share price briefly dropped following the announcement, taking it down 4% for the day, before recovering to close 2% up.
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There could be further damage to the reputation of News Corporation, damage which could alienate advertisers and buyers of its newspapers and entertainment”
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The company's share price has fallen some 20% since peaking at 850p earlier this month, and is now trading at a level not seen since News Corp first announced its bid plans in June last year.
Following News Corp's announcement, BSkyB chief executive Jeremy Darroch said: "We remain very confident in the broadly based growth opportunity for BSkyB."
Shares in News Corp rose 3.8% in New York.
'Huge humiliation'
A spokesman for Mr Cameron welcomed the news: "As the prime minister has said, the business should focus on clearing up the mess and getting its own house in order."
The Labour leader, Ed Miliband, called it "a victory for people up and down this country who have been appalled by the revelations of the phone hacking scandal and the failure of News International to take responsibility".
Liberal Democrat deputy leader Simon Hughes said that "the sun is now setting on the Murdoch empire".
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British Sky Broadcasting Group
Last Updated at 13 Jul 2011, 15:30 GMT
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The BBC's business editor Robert Peston said: "It's a huge humiliation. This was [News Corp's] biggest investment plan of the moment. It was one of the biggest investments they've ever wanted to make.
"It is an extraordinary reversal of corporate fortune... And questions will now be asked whether this is the full extent of the damage to the empire."
News Corp already owns 39% of BSkyB, but may be compelled to give up even this minority stake if it is deemed not to be "fit and proper" by regulator Ofcom following the conclusion of current police investigations.
Robert Peston added there had been "a lot of speculation" that Mr Murdoch might now want to sell his UK newspapers, but the current state of the industry made them less attractive to potential buyers.
"The question is, who is going to pay him the price that they are worth? He will not want to sell those papers at a loss."
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