Welsh Secretary Simon Hart vetoed the plans – which had been given planning permission – after cost estimates suggested the taxpayer would have to cough up £180,000 for the project.
Council officers in the Welsh capital had approved planning permission for the massive flag, which would have covered 288 square metres. The vinyl flag would have been 32 metres high and nine metres wide.
The UK government said the plans had been scrapped as they “did not represent good value for the taxpayer”.
Tŷ William Morgan (William Morgan House) in Cardiff will have room for 4000 civil servants to work, including from the HMRC tax service, the Wales Office, the Department for International Trade, and the Cabinet Office.
A petition from grassroots campaign group YesCymru to have the flag scrapped called the project “an act of political symbolism designed to promote ‘muscular Unionism’, a reminder to the people of Wales of their subservient status”.
The petition had gathered almost 20,000 signatures.
The plans had also been criticised by Labour members of the Welsh Senedd. Blaenau Gwent MS Alun Davies had said: “Someone’s feeling a little insecure.”