Work on the academy is expected to begin in 2009

The private consortium promoting St Athan was unable to deliver an "affordable" solution for logistics and personnel training, said ministers.

Some MPs estimated it was worth up to �5bn and would have seen 4,500 personnel trained on site.

But Metrix's plans for a new training academy, providing up to 5,000 jobs at the base, will still go ahead.

A spokesman for Metrix said the Ministry of Defence (MoD) had given a greater commitment to this part of the project, which was "an important milestone".

"The announcement will lead to the creation of thousands of jobs in south Wales and have a positive economic impact in the area and along the M4 corridor and we look forward to working closely with the Ministry of Defence in delivering Package 1," he said.

The UK government has advanced �9.5m to the consortium to help speed up its planning for the scheme.

The St Athan site had previously been in pole position to win both defence training contracts.

But Defence Minister Bob Ainsworth announced on Thursday that the second, smaller package which it was hoped locally would lead to personnel, logistics, guarding and other training being set up at St Athan, needed further work.

Metrix are no longer the preferred bidder.

It had been estimated that this smaller package would have involved training for 4,500 people, currently spread across 18 sites in the UK, in a package worth up to �5bn, according to MPs.

The academy is predicted to provide an economic boost to the area

Mr Ainsworth said the consortium was unable to come up with "an affordable and acceptable solution".

The MoD announced a year ago that it was to train servicemen and women at the academy.

Later in the year it confirmed it would proceed with the main part of the development - the training academy, which is known as Package 1.

It said building work should start in 2009, with the final phase expected to be completed by 2013.

Civilian staff should be able to transfer there after 2011.

But there was always doubt whether the smaller second phase would come to south Wales.

The two training packages are worth a combined �16bn and up to 5,000 permanent jobs, although the majority of positions would come with the first phase of the academy.