The first of two $900 million Spirit replacement vessels has been docked in the Scottish town of Leith near Edinburgh since early December.
It was sent there as a required port at Devonport, in the state's northwest, hasn't been completed.
The ferry service's government-controlled operator TT-Line in late January said it had entered "commercial negotiations" after receiving an offer to lease the ship.
In a stunning U-turn, the Tasmanian government announced it had instructed TT-Line to immediately cease negotiations and begin planning to relocate Spirit IV to Tasmania.
"TT-Line has been engaging with a broker in good faith," Transport Minister Eric Abetz said in a statement on Sunday.
"However, it has become evident that an agreement will not be reached."
It followed the Scottish government shooting down speculation it could lease the Spirit of Tasmania ferry to house Ukrainian refugees.
Tasmania's government has been paying more than $47,000 a week plus "ancillary services" for a minimum 30-day berth after the ferry left its construction yard in Finland.
Despite a deal falling over, Mr Abetz claimed the government had acted in the best interests of the state's finances.
"We had an opportunity to secure an agreement worth tens of millions of dollars for the Tasmanian taxpayer, and it would have been economically irresponsible not to explore this," he said.
"Previous similar leases provided more than 50 million euros to vessel owners, and it was prudent that we sought similar arrangements for Tasmanian taxpayers."
He previously estimated a trip to house the vessel in Tasmania would cost millions of dollars.
State shadow treasurer Josh Willie said the ferry fiasco has been Tasmania's biggest infrastructure stuff-up and a "complete farce".
Labor has been arguing the ferry should have been brought to Tasmania from the start, with Mr Willie accusing Premier Jeremy Rockliff of wasting taxpayers' money to try to save face.
"It has been one stuff-up to the next and there seems to be no end in sight," he said.
"(Mr Rockliff) could have brought them home, delivered on his promise for a local fit-out and got them ready for service."
Spirit IV was originally meant to be transporting passengers and freight across Bass Strait by 2024, but infrastructure delays to the port of Devonport likely won't be ready until early 2027.
Treasurer Guy Barnett was unable to say exactly when the vessel would depart and where it would dock in Tasmania.
"The relentless negativity has not helped with respect to these negotiations," he told reporters.
TT-Line declined to comment on Sunday's development.
In December, the operator's interim chairman Damian Bugg told a parliamentary hearing it should not have gotten involved in the port build.
TasPorts interim chair Amara Doyle said the company completed its portion of the port build on time and didn't contribute to delays.
The second of the new ferries is expected to be delivered in 2025.
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