Instead, Ministers have agreed councils in the Leeds City Region area can develop plans for environmentally-friendly housing developments on the edge of existing towns or cities.

It ends months of deadlock between central and local government in the region. Former housing minister Caroline Flint had demanded councils find a suitable site only for local authorities to carry out a study and conclude there was nowhere suitable.

In a statement today, the Department for Communities and Local Government said: "We have agreed to a proposal from the local authorities in the Leeds City Region to develop an urban eco-community in the area that meets the sustainable standards of an eco-town, but is not be a distinct settlement.

"There are three potential locations for this eco-community under consideration, in the Aire Valley, North West York, and the Bradford-Shipley corridor. This will now be taken forward with local authorities outside the eco-towns programme, and Leeds City Region has therefore been removed from the 12-strong eco-towns shortlist."

Meanwhile the bid for a 5,000-home eco-town at Rossington in South Yorkshire has been scored a Grade B in the latest assessment, meaning it may be a suitable project if it meets specific planning and design objectives.

A fresh round of consultation on the standards required in the eco-town developments begins today before a shortlist of up to ten is drawn up from the 12 remaining bids.

The Government wants to build five eco-towns by 2016 and another five by 2020.

Housing Minister Margaret Beckett said: "The threat of climate change is a challenge we must tackle at every level and housing is no exception. Developing a greener approach to our housing need is crucial and eco-towns are a vital part of this programme. As well as providing additional homes they represent an opportunity to trial the kind of green technology that I hope will soon become commonplace in all new development. The Government must be at the forefront of the green agenda and that is why today's proposed standards mean eco-towns face the UK's toughest ever green standards for new development.

"I believe it is vital we get the locations for these eco-towns right, and the shortlist has been refined to reflect the results of the most detailed assessment to date on these potential locations. But I do not expect all of these locations to go forward – the eco-town standards are tough and I think some of these shortlisted schemes could struggle to meet them. Everyone has the opportunity to have their say on these proposals, both now and in the future when planning applications are received."

What do you think? Register or sign in to have your say on this story.