Football Federation Australia (FFA) in September gave the backers of the Sydney Rovers a month to convince league administrators of the viability of their franchise to compete alongside Sydney FC.
The FFA would "open discussions with other interested parties after mutually agreeing with the Sydney Rovers consortium not to pursue its bid for a franchise in western Sydney," the governing body said in a statement on Friday.
"FFA remains committed to (an)... A-League franchise in western Sydney and will now engage with other interested investors."
A-league boss Lyall Gorman last week rejected the notion that the competition's development would lose momentum in the wake of Australia's failed World Cup bid.
The FFA has been slammed over its administration of the A-league in recent months, accused of expanding the fledgling competition too quickly and then being distracted by the 2022 bid.
Attendances have plummeted in recent seasons and a number of clubs in the 11-team competition are walking a financial tightrope.
In September, the FFA had to intervene to save east-coast club Newcastle United from crippling debt by switching the franchise's license to a wealthy local mining magnate.
Administrators this week flagged starting the season later and cutting midweek games in a bid to try to shore up flagging support.
