Under the proposals by the Homes & Communities Agency, many homes built by the quango on public land would have had to meet a new set of Core Housing Standards, costing developers an estimated £8,000 per home, according to the Department for Communities and Local Government.
Housing minister Grant Shapps said there was no reason why the standards that apply to private and public housing should be different.
The plans proposed new housing standards in three areas: internal environment; external environment; and sustainability.
In their place, the Department for Communities and Local Government said a new local framework would now be developed by the construction industry and local authorities.
This would be implemented through a new national planning policy framework, to be introduced in March 2012, the DCLG said.
President of the Royal Institute of British Architects Ruth Reed said the decision was "deeply troubling" and that it could have profound implications for communities across the country.
"The proposed HCA standards were designed to raise the overall quality of publicly funded housing and ensure that new homes meet the most basic of lifestyle needs. Reform was desperately needed," she said.
Reed called on the Government to provide strong, clear guidance on design quality.
"UK housebuilders have delivered the smallest homes in Europe and have built homes which have been consistently judged to be of a poor quality by the Government’s own design watchdog."The government should be putting the interests of communities first," Reed said.
Shapps called the HCA’s proposed new standards "unnecessary" and said they would have created added cost and bureaucracy for housebuilders and potential buyers.
"There's no good reason why homes built on public land should be built any differently to those of high quality on private land. So I'm getting rid of this unnecessary requirement, and I'll be working hard to make sure that, in the long run, the standards that apply to private and public housing are exactly the same," he said.
"I'm also calling time on the cocktail of local building standards that developers have to meet, some of which are directly contradictory. Housebuilders are the experts at building homes, so I'm inviting them to be in charge of developing a new framework for local building standards - one which enables communities to get the high quality homes they demand, but without causing unnecessary costs and delays for developers."