An application to construct the extension was submitted to the UK planning inspectorate last autumn, but the owners have now formally requested that the UK's seabed landlord the Crown Estate terminate its lease agreement.
The decision was made following "a review by the consortium members of their respective portfolios".
However, the extension would have been delayed by at least three years for an assessment of the impact on birds at the site, in the Thames Estuary in east England.
Windpower Monthly reported in 2011 that phase two could be held up following the discovery of a colony of rare birds in the area. Virtually the same number of red-throated diver birds where found on the site as are usually found in the entire British Isles.
At the time, general manager of London Array Mike O'Hare said while " initial findings... look positive" it would take until "at least January 2017 for that data to be collected."
"In the absence of any certainty that Phase 2 would be able to go ahead, our shareholders have decided to surrender The Crown Estate agreement," he added.
Technical challenges associated with the site also played their part, according to the statement from the consortium, made up of Dong Energy, E.on and Masdar.
The consortium said that its existing operations at Ramsgate in east England and staffing levels will be unaffected.
This latest project cancellation will set alarm bells ringing for those in the industry, following the recent cancellation of a number of UK developments.
Last November, RWE killed off its involvement in the 1.2GW Atlantic Array offshore wind farm in the Bristol Channel, western England after spending five years and an estimated £13 million (EUR 15.6 million) on the project.
Following that in December Iberdrola-owned ScottishPower Renewables said that it will not go ahead with plans to develop the 1.8GW Argyll Array offshore wind farm in Scotland "in the near future".
However, O'Hare was keen to press that the consortium still has faith in the offshore market, saying its shareholders "remain committed to offshore wind in the UK".