Union on Victoria Motel owner Bruce Beesley said his property would have been split in half by the road.
He and four other moteliers had previously hired a solicitor and town planner to fight the project in previous submission processes.
"It was starting to get a little bit expensive. It doesn't surprise me ... Back when we did all the submissions the council were told it wasn't going to work."
In discussing the decision and the legacy of the previous council, chief executive Geoff Williams said this was the start of a long-term planning process.
"We're going to be looking at all those projects that are on the books and re-examining them - are they the right things to be doing and will they make a difference?
"There's no rock being left unturned in the way we are approaching this."
The council bought 16 properties - 11 residential and five commercial - for $6.3 million to make way for the road. Mr Williams said these would be offered back to the previous owners to buy back at current market value.
The project was also less likely to meet New Zealand Transport Agency (NZTA) subsidy requirements which meant rates would have to increase to foot the $50 million bill.
Instead, the agency has indicated to council it would revoke the state highway status currently in place on Amohau St and part of Te Ngae Rd and that it would help with any works programmes to improve traffic and pedestrian flows and safety in the area.
Rotorua deputy mayor Dave Donaldson said the council's focus was now on Amohau St and making it a better link between the mall and the CBD.
"What we now have, given the agency's indication of support, is actually an opportunity," he said. "It's an opportunity to get things right in the CBD, to make it more user-friendly, safer and create better linkage between Rotorua Central and the rest of the inner city."
Mr Donaldson said the arterial was intended as a way to manage traffic movement across the city but the review had found that more than 80 per cent of vehicles were actually travelling into, rather than across, the CBD.
"Past decisions were based on information, trends and thinking at the time - all of that has changed and we are satisfied there are better solutions for our inner city and that removing the designation is the right decision.
"We acknowledge this proposed project prompted some strong opposition, particularly from businesses along the intended route concerned about the impact on their operations.
"Residents and businesses want certainty and prudent spending and decision-making and we believe these decisions will provide that."
The NZTA has said it supports the council's decision.
"The council's decision is based on sound information," said NZTA regional director Harry Wilson.
The decision has no bearing on the Rotorua Eastern Arterial project.
People who had sold property to the council but who have since moved away should call the council on (07) 348 4199 to provide current contact details.
By the numbers
• Estimated cost: $50 million
• Council portion: $23 million
• Properties bought: 16
• Money spent on properties: $6.3 million
• Vehicles using Amohau St per day: 25,000
• Vehicles travelling in/out of the CBD: 21,000
• Vehicles crossing the city: 4,000
