A ramp in Ramsgate, where Seaborne Freight was due to dredge to prepare for a no-deal Brexit
Labour says the decision to terminate Seaborne Freight's deal shows Transport Secretary Chris Grayling "is not up to the job".
A firm with no ships that was to ensure ferries kept crossing the Channel in a no-deal Brexit has had its contract cancelled.
Seaborne Freight's £13.8m contract had attracted widespread criticism after it emerged the firm owned no vessels suitable for carrying goods or vehicles.
The Department for Transport (DfT) said it had decided to terminate Seaborne's contract after Irish company Arklow Shipping, which had provided backing to the deal, stepped away.
A DfT spokeswoman said: "Following the decision of Seaborne Freight's backer, Arklow Shipping, to step back from the deal, it became clear Seaborne would not reach its contractual requirements with the government.
"We have therefore decided to terminate our agreement.
"The government is already in advanced talks with a number of companies to secure additional freight capacity - including through the port of Ramsgate - in the event of a no-deal Brexit."
Transport Secretary Chris Grayling last month defended the decision to award Seaborne Freight a contract, claiming it was "not a risk".
Labour said the latest move showed that Mr Grayling needed to go.
The party said in a tweet: "When is the PM going to take action and accept that Chris Grayling is not up to the job."
Seaborne was one of three companies awarded contracts totalling £108m in late December to lay on additional freight crossings to ease the pressure on Dover.
Further controversy followed when emerged the firm copied its terms and conditions of business from the website of a takeaway.
The firm had said it was on track to start twice-daily sailings by the end of March - when the UK is due to leave the EU - having initially planned to launch Ramsgate-Ostend crossings during February.
The company said in a statement in December that it had been working since 2017 on plans to reintroduce ferry sailings from Ramsgate starting in early 2019.
The DfT said it stood by the robust due diligence carried out on Seaborne Freight and added no taxpayer money had been transferred to the company.
Paul Messenger, Conservative county councillor for Ramsgate, said he was pleased the contract had been scrapped as the deal would have meant the town's historic docks would have suffered.
He said: "Ramsgate should not be used as a sacrificial lamb for 'Brexit No Deal Resilience' as at best it could only service a 3% contribution to cross channel [roll-on/roll-off services] if a ferry link with Ostend was established.
"The DfT have done the right thing by pulling away from Seaborne as they were proven to be not fit for purpose."