Hard volcanic rock in the seabed, the strength of wave action which could impede construction and the significant presence of basking sharks are the main reasons for the decision.
Announcing its decision, ScottishPower Renewables (SPR) said the Argyll Array project was currently not financially viable in the short term.
The project may become viable, however, as offshore wind technology develops, the company said, but it estimates it will not be in the next decade.
Campaign group No Tiree Array (NTA), formed in 2010 to resist the development, welcomed the news. "Had the Tiree [Argyll] Array been developed it would have been an environmental disaster for Tiree and the west coast of Scotland," it said in a statement.
But some Tiree residents had seen it as a way of tackling depopulation with new business opportunities and jobs on an island that has lost 15% of its population in the last 10 years.
SPR insists it never said how many turbines would be needed, only the capacity of up to 180MW. It was widely calculated it would be 300 turbines. There were even predictions of 500.
Jonathan Cole, SPR's head of offshore wind, said: "As cost reductions continue to filter through the offshore wind industry, and as construction techniques and turbine technology continues to improve, we believe that the Argyll Array could become a viable project in the long term."
One of the developers' problems was the results of a basking shark tagging project launched by Scottish Natural Heritage. It found higher numbers than expected, which also surprisingly displayed courtship-like behaviour such as jumping the water, parallel swimming or nose-to-tail swimming.
SPR, owned by Spain's Iberdrola, follows RWE and Centrica, which have cancelled a project each, saying they were uneconomic because existing technology was not advanced enough.