International firm TGS proposed dropping blasts over 31,500sq km in the Otway Basin, waters between Victoria and the island state's northwest coast.
The oil and gas exploration project sparked protests, while some scientists raised concerns the impact of seismic testing on wildlife including whales was not fully understood.
Seismic blasting is deadly for marine life and can impact all levels of the food chain. (James Ross/AAP PHOTOS)
Tasmania's peak fishing industry body also voiced opposition, claiming blast zones were adjacent to rock lobster and giant crab fisheries off King Island.
TGS cited "competing global priorities" for the decision to not pursue the project, which had been scaled back from an initial 77,000sq km.
The company said it had told the national regulator for offshore petroleum and greenhouse gas storage it was withdrawing its environmental plan.
TGS thanked people who had participated in the project and said no further comment would be made.
Australian Marine Conservation Society's Lousie Morris said it was a win for community campaigns.
"Thousands of people have turned out to protest in coastal communities," she said.
"More than 30,000 people made submissions to (the regulator) about this controversial project, with the vast majority opposing it.
"Seismic blasting is deadly for marine life and can impact all levels of the food chain, from ... killing zooplankton ... to deafening whales and driving them away from feeding and breeding grounds."
Greens Senator Peter Whish-Wilson said the decision was proof sustained people power and protest action worked.
A representative from global energy industry association EnerGeo Alliance has previously told AAP there was "no evidence" seismic testing damaged wildlife to the extent conservationists claim.
Federal Energy Minister Chris Bowen told ABC radio the Otway Basin was a very sensitive part of the country and a decision had been made on that basis.
He said gas remained an important part of Australia's energy mix.
Ms Morris said another Otway Basin seismic testing proposal, by data company CGG, was along endangered right whale migration routes.
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