The decision follows a year's delay in processing applications and even the five that have been approved for PFI credits must resubmit their proposals which may cause further delays.
The Department for Transport said it received combined bids worth £3 billion, five times over the government's £600 million budget.
The successful councils which will need submit proposals again in February 2008 are:
Isle of Wight
The councils that were refused credits are:
Source: Infrastructure Journal