The federal government has cancelled plans to select a new site for the proposed Portrait Gallery of Canada, saying none of the proposals from across the country met their requirements.

The Department of Canadian Heritage and Official Languages announced the decision late Friday afternoon in a brief news release.

"In this time of global economic instability, it is important that the federal government continue to manage its own affairs prudently and pragmatically," Heritage Minister James Moore said in the statement. 

"The selection process failed to meet the best interests of both the Portrait Gallery and taxpayers. We have therefore decided not to pursue this project further at this time."

Proponents of an Ottawa-based gallery said they were encouraged by the news, and are confident the gallery will be in the national capital when the project finally goes ahead. Ottawa's bid was based on an April agreement between the city and local developer Claridge Homes to build the gallery in conjunction with two condo towers.

The gallery concept has morphed from political dream to financial sinkhole in less than a decade, and ignited considerable debate in recent months.

An original 2001 plan to house the gallery in the old American embassy, directly across from Parliament Hill, was scratched by the Conservative government due to projected cost overruns of $22 million.

To find a new location, last November the government initiated a selection process to find the best public-private partnership. The museum's opening was planned for 2012.

Ottawa was believed to be one of the final three cities in the running, along with Calgary and Edmonton-- thanks to strong financial backing from the energy industry and potential real estate developments.

The Alberta government also promised $40 million if the province was chosen. Halifax, Quebec City, Montreal, Toronto, Winnipeg, and Vancouver were also invited to make bids. 

But a central question has been whether such a national institution belongs in the capital, or whether other cities deserve to share hosting duties.

Critics lashed the Conservative bid plan as either an international embarrassment (for flirting with a national institution outside the nation's capital) or a ploy by Prime Minister Stephen Harper to put the gallery in his Calgary political base.

Ottawa Centre MP Paul Dewar introduced a motion in June that would have required parliamentary approval to build the gallery anywhere else. Liberal Senator Jerry Grafstein has sought to amend the Library and Archives Act of Canada to similarly prevent such a move.

For now, the portrait collection will continue travelling across Canada in exhibitions and other public programs. They are housed in an Ottawa-area building administered by the National Archives.