Plans to locate Australia's first nuclear waste dump in a remote outback area were dropped Thursday after a long battle with traditional Aboriginal landowners.

Muckaty Station in the Northern Territory was nominated in early 2007 as a site to store low and intermediate radioactive waste under a deal negotiated with the Aboriginal Ngapa clan.

But four other clans also laid claim to the land and said it was adjacent to a sacred site, waging a long fight to have the decision revoked.

A Federal Court trial began this month with opponents claiming the nomination was invalid due to a failure of the government and the Northern Land Council (NLC) to obtain the consent of all Aboriginal owners.

The land council, the indigenous organisation which helped negotiate the deal, said it stood by the process which led to the nomination but had decided not to go ahead.

The court case was dismissed Thursday with no admission of liability.

NLC chief executive Joe Morrison said that Aus$12 million (US$11.2 million) that had been on the table from the government as compensation for the community would now not be paid.

"These people are all related to each other and it's a tragedy that they have become divided," he said, with healing the fractured community a key reason for dropping the case.

"The most pressing task facing the NLC now is to bring families back together and to reconcile."

The government said it had agreed to the NLC request that the site no longer be considered, and it would hold discussions to find an alternative.

"If a suitable site is not identified through these discussions the government will commence a new tender process for nominations for another site," said Minister for Industry Ian MacFarlane.

Lawyers for the traditional land owners said their clients were overjoyed with the outcome.

"Every step of the process was opposed by people on the ground, and that may be one reason why they've decided to no longer rely on litigation," Maurice Blackburn lawyer Elizabeth O'Shea told reporters.

While Australia does not use nuclear power, it needs a site to store waste, including processed fuel rods from the country's only nuclear reactor at Lucas Heights near Sydney, a facility mostly used for nuclear medicine and research.

The Australian Conservation Foundation said the case raised questions about the country's management of long-lived radioactive waste.

"This result is a tribute to the tenacity and courage of the many traditional owners who have been tireless in their defence of country and culture for more than seven years," said campaigner Dave Sweeney.

"It is also a stark reminder of the failure of successive federal governments to adopt an effective and responsible approach to radioactive waste management and highlights the need for a new approach to this old problem."