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Bosses at Barton Court Grammar School have dropped controversial plans to move from Canterbury to Herne Bay.
The governors met yesterday evening to consider whether to progress with the proposals.
They had initially wanted to close the school's site in Longport and relocate to a new development next to the Thanet Way in Herne Bay.
Today, chairman of governors Dr Peter Klappa said the project had been halted following "careful consideration".
In a statement, he said: "It has, rightly, been a very thorough consultation with parents, staff, pupils and a wide range of stakeholders, and we have taken time to consider carefully how we should move forward.
"I set a deadline for a decision to draw a line under any continuing uncertainty and the governing body met yesterday to make that important decision.
"We are no longer actively looking to move to the coast and are concentrating our efforts on improving best we can the facilities on the current site.
"Governors felt that the funding gap between what we could raise and what we would need to spend had become too much of a risk for the school."
The decision will be welcomed by some parents of pupils currently at the school, who formed the Barton Court Parents' Forum to campaign against the proposed move.
But it will likely come as a blow to families living in Whitstable and Herne Bay, who have long called for a grammar school on the coast.
Herne Bay councillor Andrew Cook said: "It's a real shame for Herne Bay. I spoke to hundreds of parents and most were very much in favour.
Dr Klappa continued: "We realise that this will be welcomed by those living in the city while at the same time be a great disappointment to many families and young people on the coast, particularly in Whitstable and Herne Bay.
"We took our decision based on the financial reality of rapidly increasing costs, brought about by a resurgent building industry, and a lack of any funding commitment by Kent County Council.
"Given that reality it was impossible to recommend to governors that they progressed to a full business plan to the Department for Education."
School chiefs announced their desire to move the school to the coast last year, and launched a consultation with parents, staff and pupils which drew a mixed response.
It came after developer Mark Quinn offered financial help including a free site for the school in Herne Bay.
Reacting to the decision, Mr Quinn said: "This is an understandable decision. Given the effect of building inflation, which is running at over 7% at the moment, the cost of the project has risen substantially in the year since the school started on this journey.
"Despite the offer of a free site on our Herne Bay development and the promise a substantial financial contribution from us I can fully appreciate the school's reticence to commit given the risk factors associated with build cost inflation."
In a letter to parents sent today, head teacher Kirstin Cardus said: "While it may at times have seemed a protracted consultation process, it was an important one, and I express my sincere thanks to all who submitted their thoughts or attended one of our many meetings.
"Your input was invaluable and fully considered by the governors.
"Today, as we remind ourselves of the excellent performance of our IB and A-level students this summer and celebrate the wonderful achievements of those receiving their GCSE results, we also look forward to welcoming our new Y7 pupils into school in September.
"Be assured that me and my excellent team here at Barton Court will continue to work tirelessly to offer the best education and opportunities for your children so that they may all achieve their full potential and continue the great tradition for success here at Barton Court Grammar School."
Canterbury MP Julian Brazier said: "I have just received notification of the school governors' decision to remain on the existing site.
"Whilst I am sure that some prospective parents in Whitstable and Herne Bay are saddened by this decision, as it would have been an excellent opportunity for a coastal grammar school, the decision is a prudent one when considering the funding gap that has opened up between the original offer and now. I know that many in Canterbury will welcome it.
"I hope that everyone who has contributed to the process, from both sides of the argument, will support the Head Teacher and the governors as they work towards improving facilities on the current site.
"I would also like to congratulate all the students who did so well in their public exams this summer – a reflection of the commitment of students and excellent teaching by the staff."
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