A controversial £25m town centre redevelopment was dead in the water last night after the scheme was effectively scrapped by frustrated council chiefs.

Durham County Council has served a legal notice on Manchester developer CTP Limited effectively terminating the deal to revamp Newton Aycliffe's ailing shopping centre.

The centre has suffered, while a Tesco superstore built adjacent by CTP, has prospered.

The Tesco development had been hailed by Sedgefield Borough Council planners as a once-in-a-generation opportunity to revitalise the 40-year-old shopping precinct.

Tesco was built on the site of a former comprehensive school and the original plan was to link the superstore with the old town centre.

Phase one - the Tesco store and eight small units - went ahead on schedule, but phase two - a pedestrian plaza, health centre, library and community facilities, has stalled.

Voters voiced their frustration over the delays earlier this month when Labour lost control of Great Aycliffe Town Council. The Labour representatives on Sedgefield Borough Council also lost their seats.

Shortly before the election, borough council leader Bob Fleming said he was confident the scheme would still go ahead following a meeting chaired by Prime Minister Tony Blair.

But now The Northern Echo can reveal that the original plan is almost certainly doomed - and has been for some time.

CTP approached Daejan Holdings - which owns and operates the old shopping centre - with a view to acquiring buildings in Dalton Way. The block of retail units had to be demolished in order for the second phase to go ahead.

But the deal never went ahead and now Durham County Council has moved to replace CTP - effectively signalling the end of the scheme.

The Northern Echo understands that CTP's permission to start the phase two development has expired and the authority has told the company it is considering alternatives.

Andrew Thomson, Daejan's commercial manager, revealed: "As we understand it, the original scheme will not proceed.

"Before the planning application was finalised, we were approached by the developers about acquiring the block of units we own in Dalton Way.

"The acquisition of this block is critical to the next phase of the development and the integration of both sites.

"Terms were agreed and the block was effectively mothballed, but the developers never acquired the site and it is still in our ownership."

The dilapidated health centre, library and disused toilets, along with the mothballed three-storey retail and office block, still divide the town.

Former shopkeeper and Sedgefield borough councillor Paul Gittins said: "I left my shop in 2003 because I was told the whole block was going to be demolished the following year.

"Here we are, four years later, and the shop is still standing and there has been no progress whatsoever.

"More and more shops and businesses are closing and, at night, parts of town are a no-go area.

"The town centre has been in a steady decline for years and you cannot trade in that kind of environment."

The county council's deputy chief executive, Chris Tunstall, confirmed that the authority had served notice on CTP, but could not comment further. He said: "It is a legal matter."

But it is believed that a binding five-year deal with CTP, built in as part of the planning permission, has expired.

Mr Tunstall said he hoped the project would still proceed.

"We are looking at the possibility of a temporary relocation of Newton Aycliffe Library and discussions are on-going," he said.

A spokeswoman for the primary care trust said: "We are aware the current health centre building is no longer fit for purpose and we are looking at alternative accommodation."

Daejan conceded that it would be difficult to integrate the town after such a period of stagnation, but say it is not impossible.

Mr Thompson said: "All we can say is that now the CTP-backed integration scheme is dead in the water we can develop and push through alternatives.

"We only own a part of the jigsaw, but we are intending to bring forward improvements in the town centre in the next year to 18 months. Realistically, any proposed integration between the two sides of the town centre would be beyond that time scale."