Hope and Sons had appealed a decision of the Dunedin City Council and Otago Regional Council to decline the application for a cremator at its Andersons Bay Rd base, which is in close proximity to both homes and businesses.
The councils turned down the proposal based on air quality standards, and consideration of cultural, spiritual and amenity values.
Neighbourhood Residents Group chairman and Bay View Rd resident Lew Campbell said the group, set up in a "hell of a hurry" in November to fight the appeal, was "elated" the cremator plan had been dropped.
Mr Campbell's home was 130m from the proposed cremator site, while some homes were within 30m.
The group said it would not celebrate the win until it was certain that the company was not pursuing any other site in Dunedin near to homes.
Mr Campbell was concerned cremators could be established near homes if they passed consent hurdles.
The city council's Andersons Bay crematorium was operating well away from homes, and had ample capacity, he said.
Hope and Sons director Lyndon Hope said the company dropped the legal bid due to cost, declining to disclose what it had spent so far.
The company was "always" looking for a suitable Dunedin site either for an "eco-cremation" facility or a "state of the art" traditional facility.
Mr Hope said cremators were accepted in other parts of the country in proximity to homes and businesses.
He said opposition to the South Dunedin proposal had not been particularly widespread.
Grey Power Otago president Jo Millar was "delighted" proceedings had been dropped, but remained concerned at what alternative plans the business might pursue.
Anxiety over the proposal had affected the health of many of the elderly residents fighting the South Dunedin proposal, she said.
