Hawke's Bay Regional Council says it will have to consider whether it is worthwhile pursuing its bid to re-open the Napier-Gisborne rail line.
KiwiRail has withdrawn its offer to lease the line after the council asked for more time to develop its plan.
The rail company mothballed the line at the end of 2012, because of storm damage north of Wairoa.
The council has been considering a business case to initially reopen a shorter section of the line between Napier and Wairoa for transporting logs.
But KiwiRail has rejected its request for more time to confirm its interest, because it said there were too many outstanding issues to resolve.
The regional council's chair Fenton Wilson said it had to decide where to from here, but that it would not kill the idea.
"The ambition for an opportunity for rail on the East Coast still remains: I mean, we see it as almost a right - we've got a billion dollars worth of idle assets sitting there, we produce 4 percent of the country's GDP.
"Access to bi-modal freight movement is still a worthwhile discussion, so I'm disppointed with the outcome but not totally surprised.
"I must admit there hasn't been a lot of support from the Government as much as anything on the way through, and this is not about blaming people but it's really about trying to get to the bottom of what success might look like for rail on the coast."
KiwiRail said it would now begin looking at rail-enabled tourism ventures as possible users of the line.