A proposal to construct a new mental health facility at Castleford, Normanton and District Hospital has been scrapped.
The South West Yorkshire Partnership NHS Trust said it planned to sell land at the hospital on Lumley Street.
And it secured outline planning permission for the demolition of all existing buildings at the site and the creation of 100 houses and a new Child and Adolescent Mental Health Services (CAMHS) unit in February.
The Priory Group submitted a full planning application to Wakefield Council in June for the construction of the in-patient care facility, with en suite bedrooms, therapy rooms and office space.
But this has now been withdrawn.
Alan Davis, director with responsibility for estates at the NHS Trust, said: “We have been in discussion with The Priory Group for several years about the potential joint development of a new CAMHS inpatient unit on part of the site.
“The remainder of the site has outline planning permission granted to develop 80 to 100 houses.
“After extensive consideration, including the future commissioning arrangements for CAMHS inpatient beds, both the Trust and The Priory Group have agreed not to pursue this proposal.
“The site has been marketed and we are now in discussions with interested parties with a view to finalising the sale of the land in 2017.”
The Trust said it was investing more than £20 million in healthcare services in the district, including opening new health and wellbeing hubs in Wakefield and Pontefract and redeveloping Fieldhead Hospital.
And it said money from the sale would contribute to the projects.
The Castleford hospital site is currently used as an administrative base for Trust staff, with a small number of outpatient services.