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Manchester had won the bid to develop a gambling resort but Gordon Brown effectively killed off the plans soon after taking over as prime minister.

But Culture Secretary Andy Burnham said that 16 smaller casinos will go ahead in towns including Leeds, Milton Keynes, Swansea and Stranraer.

Manchester City Council may appeal against the change of plans.

'Important differences'

Announcing the U-turn, Mr Burnham told MPs there was 'no consensus' on whether to build a super-casino and said there had been concerns over potential negative impact.

He said there were 'important differences' between a super-casino - with 1,250 unlimited stake and jackpot machines - and the 16 approved casinos, which are still considerably larger than current casinos.

Mr Burnham said that the UK would have the 'toughest regulatory regime for gambling in the world'.

He said he would introduce a restriction requiring casinos to close their doors for at least six hours a day, a ban on credit card use and outlawing of free drink promotions.

He also promised a statutory levy on casino operators to fund treatment and advice for gambling addiction unless the industry delivers a 'substantial increase in contributions' to the current voluntary scheme.

In January last year, east Manchester was the surprise winner - ahead of Blackpool - of a contest to host a huge the super-casino.

But the prime minister announced a review of the decision in July, saying super-casinos were not the best way to regenerate run-down areas.

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'Social disorder'

In a report published on Tuesday, the government said the benefits of a large 'regional casino' could be reaped through 'alternative, but equally effective projects'.

It has looked at alternatives, such as museums, theatres, retail, commercial and housing developments, and says once potential economic and social costs of a super casino are factored in, there is little difference in the benefits.

It suggested high-paying casino jobs were likely to attract people from outside the area, 'which would mean that local people do not necessarily benefit, but would still bear the brunt of any risks faced'.

Permission is to be given for smaller casinos in the Bath area; Stranraer in south-west Scotland; Scarborough; Wolverhampton; Swansea; Luton; Torbay in Devon; and East Lindsey in Lincolnshire, an area which contains resorts including Skegness.

Mr Brown's spokesman said: 'As we said in July, there is a huge difference in scale in terms of gambling opportunities in a super-casino and smaller casinos.

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'What we said was we would work up alternative regeneration packages which did not rely on a super-casino.'

Manchester City Council leader Sir Richard Leese said he was disappointed and the announcement would be 'scrutinised in detail'. He did not rule out taking legal action.

He said a super-casino would have brought 3,500 new jobs and money to east Manchester and said the city needed a clear commitment that any alternative would bring 'the greatest possible benefits'.

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Shadow culture secretary Jeremy Hunt said: 'After seven months of dithering, the government's gambling policy is a mess.

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'When will the government understand this is not about the size of the casino but the underlying protections put in place to prevent and treat a social disorder that breaks up families?'

Liberal Democrat culture spokesman Don Foster said the government's gambling policy was 'muddled and confused' with the original local authority bids for the super-casino costing more than £1m of taxpayers' money.