The plant was expected to start operations in the 2011 business year, and to supply electricity to Japan's largest power utility, Tokyo Electric Power Co Inc (TEPCO), and Tohoku Electric Power Co Inc, the fifth-largest utility.

The firm also said it would withdraw from a dam project in Niigata Prefecture, jointly developed with the local government.

Electric Power Development needed to curb capital spending and strengthen its balance sheet ahead of planned privatisation in 2003, company officials told a news conference.

"Peak power demand has been sluggish in recent years. The two electric power firms asked us to significantly delay the (plant) plan," said Executive Managing Director Hisao Nakagami.

"But we eventually decided to cancel the plan, ahead of privatisation."

The total cost of the dam project was estimated at 360 billion yen ($3 billion), with Electric Power Development so far investing about 14 billion yen for environmental and geological surveys.

Japan's peak power demand between 1986 and 1990, before the bursting of the bubble economy, grew an average six percent per year. But demand is expected to grow by only one percent per year over the next 10 years due to energy conservation measures and prolonged weakness in the economy, Nakagami said.

News of the pullout followed the announcement in March that Electric Power Development and Hokuriku Electric Power Co would freeze a plan to build a hydro power plant in Fukui Prefecture.