Morumbi excluded from 2014 World Cup
The announcement ended months of controversy over the renovation of the stadium, owned by local club Sao Paulo, and added to concerns over preparations for the event.
Organisers said the city had failed to provide financial guarantees to cover the costs of the renovation, estimated at around 600 million Reais ($333,000).
"The Morumbi is therefore excluded from the 2014 World Cup project," said the organisers in a statement. "FIFA and the local organising committee will engage with the city of Sao Paulo for further discussions."
They said a later announcement would be made as to whether another stadium in Sao Paulo could replace the Morumbi.
In March, FIFA said they had resolved long-running differences with Sao Paulo over the project itself which had previously not met the standards required to host matches in the knockout stages of the World Cup.
Earlier this week, officials in Sao Paulo, who want the city to host the opening match among others, said they were considering the idea of building a completely new stadium.
Brazil was elected unopposed in 2007 to host the tournament which was earmarked for South America by FIFA under a short-lived rotation system. The same policy also brought the current World Cup to Africa.
Brazil faces a huge job to improve its creaking stadiums and transport system while soaring urban crime is another major worry.
Last month, FIFA general secretary Jerome Valcke said Brazil was "not walking along the right path" and expressed concern at the lack of progress, although he has since declined to comment further, saying he is concentrating on 2010.
Although Brazil is due to host the World Cup in 12 cities, the government has said the number could be reduced if necessary.
The Morumbi, the largest privately-owned stadium in Brazil, was opened in 1960 and expanded 10 years later. It has a record attendance of 138,032 although capacity has since been reduced to 68,000 for safety reasons.