The Confucius peace prize was launched last December in a riposte to the Nobel committee's honouring of the jailed Chinese dissident Liu Xiaobo, a decision that embarrassed and infuriated Beijing.
A Chinese attempt to establish an alternative to the Nobel peace prize appeared to have flopped after just one award ceremony when the government confirmed on Thursday that the group overseeing the award had been disbanded.
But less than nine months later the Association of Chinese Local Art, which initiated the prize, said it was cancelling the award in a statement posted on the website of the ministry of culture.
No explanation was given for the decision. But the launch of the prize was marked by disorganisation and largely negative headlines, which may have prompted the authorities to pull the plug.
The prize was cobbled together three weeks after it was proposed in the wake of the Nobel committee's announcement that Liu would be the laureate in 2010.
The Chinese organisers claimed, however, they had been preparing for years to create an award to "promote world peace from an Eastern perspective" and the Confucius prize specifically.
An anonymous donor was said to have put up the first 100,000 yuan (£9,500) cash prize, which was awarded at an event scheduled one day before the Nobel ceremony in Oslo.
The nominees included Nelson Mandela, Bill Gates, Jimmy Carter and the Beijing-appointed Panchen Lama. (The previous Panchen Lama was taken away by the authorities as a child and has not been seen for more than a decade).
The first winner - the former Taiwanese vice-president Lien Chan - failed to turn up to the chaotic inaugural ceremony. His office appeared to be unaware that the event was taking place.
This generated a contrast with Liu, who was represented by an empty chair at the Nobel ceremony because he is in prison on subversion charges after promoting a more democratic form of government. His wife is under tight supervision and frequent house arrest.
Beijing is furious at Liu's high-profile award and accuses hostile foreign forces of trying to undermine its economic success.
Some in the media compared China's rival award to the Nazi's creation of the German National Prize for Art and Science in 1935 in a fit of pique at a Nobel snub.
It is unclear whether a new award will replace the defunct Confucius prize. To counter what it sees as an unfair international reputation, the government in Beijing has ramped up its attempts to project "soft power".
Along with Confucius institutes to promote Chinese culture, it has invested heavily in the foreign coverage of state-run media, such as the Xinhua news agency and China Central Television.