But he attempted to soften the blow with a funding pledge for alternative proposals such as a rapid bus system for the city.
The Government has since been discussing alternative proposals with Supertram promoters West Yorkshire Passenger Transport Executive.
Mr Darling said today that the latest plans were still 'very expensive', with costs nearly 40 per cent higher than originally planned.
'The proposal is also for a reduced scheme which places more of the risks with the public sector,' he added in a written ministerial statement.
'It does not represent the best value for money for the people of Leeds or the best use of public money - particularly when compared to alternative proposals put forward by WYPTE for a top of the range rapid bus scheme.
'I therefore cannot support requests to reinstate the tram proposal.'
In April a committee of MP's accused the Government of stalling over funding deals for light rail projects.
The Public Accounts Committee hit out at delays in the planning and approval process of tram schemes and claimed Government dithering is putting schemes in jeopardy.
The all-party committee criticised the Department for Transport for failing to act when problems with the design and delivery of projects started and costs began to escalate. The report pointed the finger at the DfT's insistence that schemes be private-sector managed rather than local authority-led.