Goodman’s plan for a datacentre in Lane Cove was met with strong opposition from locals. Photograph: Hollie Adams/Reuters Plans for a controversial $1.2bn datacentre in Lane Cove in Sydney’s north have been withdrawn, with the developer blaming “emerging” regulations from the state and federal governments for the decision to pull the plug.

The “Project Mars” plans were withdrawn from the NSW planning portal on Monday, with the developer, Goodman Group, posting on its site that the policy and regulatory environment for large-scale datacentres had “evolved significantly”.

“Having considered emerging federal and state policy, Goodman has concluded that it will not progress with the development application.” In August, the NSW government announced its new“fast-track” framework for datacentre applications that promised to assess applications within 75 days if the plans meet set principles, including applying “world-class” standards for noise and air pollution, imposing no net cost to consumers and communities and funding additional water and energy supply.

It followed the federal government’s rules in July aimed at addressing growing community concerns with datacentre location choices, and energy and water use requirements, with legislation expected to hit the federal parliament early next year.

The Lane Cove proposal had become one of the main sources of criticism of the datacentre growth in Australia.

The proposal had been criticised by local residents due to its proximity to local schools, event spaces and green space, as well as the growing concerns about clustering with a number of datacentres planned or in operation in Lane Cove. Guardian Australia first reported the community concerns in May.

Lane Cove Responsible planning spokesperson Sasha Titchkosky said she was “absolutely ecstatic” at the decision to withdrawn the plans.

“I think we could have all saved everyone a lot of hassle and heartache if we actually had an appropriate regulatory regime and the government at state and federal had jumped on this when we started calling for better regulation.

“There was a real regulatory gap and that’s causing issues all around the country with inappropriate datacentres being put forward that really don’t give communities any benefits.” Titchkosky thanked Goodman Group for listening to community concern and withdrawing the proposal.

A spokesperson for Goodman Group declined to comment further, but pointed to the opening statement made by the company’s general manager for development, Ben McGilp, at last week’s hearing of the Senate inquiry into datacentres.

McGilp said the company supports “clear, consistent and evidence-based regulation that provides confidence for communities, governments and industry.”

The peak body for the sector, Data Centres Australia, warned the committee in its submission to the inquiry that the risk for Australia is not over-building datacentres but “under-building.”

“Turning the investment away does not reduce global data centre energy or water use, it simply redirects it to jurisdictions with weaker protections than Australia’s, while Australia forgoes the economic value and the sovereign capability.”