Safety concerns were the main reason for Corrections deciding to scrap the idea of a "halfway house" in the Whanganui suburb of Bastia Hill.
The department proposed a facility for people transitioning from prison to the community for a property in Shakespeare Rd last month.
The project met immediate objections from residents, and the threat of a petition opposing such a facility.
Deciding not to proceed with the project, Corrections said that safety was its "top priority".
"We are committed to talking with local communities when considering the establishment of new reintegration services. We understand that the accommodation of people returning from prison to the community can be concerning.