The tender to provide a Direct Provision centre in Oughterard has been withdrawn by the applicant.
It comes after recent protests by residents of the Co. Galway village over the centre.
They had recently appealed to the Department of Justice to engage with them over alternative models for accommodating asylum seekers.
Government chief whip Sean Kyne says many questions remain after a developer confirmed today he is withdrawing his tender for the centre.
"I welcome the clarity...but there are no winners ," Mr Kyne told the Irish Examiner.
Developer Sean Lyons of Fazyard Ltd told Galway Bay FM radio that he had withdrawn his tender for use of the Connemara Gateway Hotel.
Mr Lyons told Galway Bay FM: "The present owner and myself have decided to part company - so 100% I'm telling you now that we will not be going ahead at all.
"The big thing is that we were the ones left to the front, we had no communication given out by the Department of Justice.
This morning, protestors expressed “a sense of relief” at the news.
Speculation that the former Connemara Gateway Hotel was to be repurposed as a centre to house asylum seekers had led to round-the-clock protests in recent weeks.
Rory Clancy of the Oughterard Says No to Inhumane Direct Provision told RTÉ radio’s Today with Sean O’Rourke show that “there is still a road and journey to go in saying no to Direct Provision centres.”
There is still work to be done to “help the cause going forward,” he added.
He denied that the protestors had essentially bullied the developer. “As a community we are victims of bullying too.”
He said the campaign against the State system of direct provision would continue on the grounds that it is "inhumane ".
Mr Clancy also denied that the protestors had prevented workers at the site from removing rubble that was dumped at entrances.
They facilitated access by contractors and security staff to remove equipment from the hotel. Rubble which was dumped last week to block access is also being removed.
Suggestion boxes were being distributed around the town to encourage the community to come up with alternative proposals for Direct Provision, he said.
Among the suggestions he said were converting and restoring vacant or derelict homes around the country for individual asylum families.
Brian Killoran of the Immigrant Council of Ireland told the same programme that what happened in Oughterard was a symptom of the overall problems with the Direct Provision system.
The Government’s response was reactive rather than proactive with “very low levels of consultation”.
“It’s like direct provision is the only show in town. We need to move the conversation from seeing asylum seekers as a threat to the community.”
Mr Killoran called for asylum seekers to be accommodated in homes as the numbers of asylum seekers in Ireland are “very small” in comparison with numbers throughout Europe.
The Direct Provision model “tends to cluster people together,” he said. Housing bodies and communities should be involved so that a different model could be phased in over a number of years.
“We need to move to the next conversation. It can’t continue to be this model. The future for asylum seekers cannot continue to be Direct Provision.”
Additional reporting by Lorna Siggins