Communities Secretary Sajid Javid said he is "very disappointed" but the local decision will be respected.
The seven councils which make up the North East Combined Authority voted 4-3 against the devolution deal earlier this week.
The North East's devolution deal is in doubt after a split vote between the seven councils which make up the North East Combined Authority.
Newcastle, Northumberland and North Tyneside all voted to move forward but Sunderland, Durham, South Tyneside, Gateshead voted against.
Paul Watson, chairman of the North East Combined Authority (NECA), said although the split was disappointing, the councils would work together towards a satisfactory outcome for the region.
Devolution would mean £30 million a year for the new devolved authority to spend - with powers over things like transport, skills and housing - and a mayor, due to be directly elected for the first time in May 2017.
A Department for Communities and Local Government spokesman said: “It is disappointing that some North East councils have been unwilling to support this deal, which would certainly have benefitted local people. “If councils in the region wish to discuss devolution proposals further, our door remains open.”
The NECC writes to Sajid Javid urging him to continue to work on North East devolution
Northern Powerhouse Minister, Andrew Percy, has been reacting to the news that the North East devolution deal has been taken off the table.
Communities Secretary Sajid Javid has confirmed that plans for a devolution deal covering the North East are now off the table.