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 Chamber of Commerce has said they're surprised that "after more than a year of negotiations, politicians are unable to come up with a devolution deal for the north east of England.
It comes after today's news that devolution deals are officially 'off the table'.
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.