Controversial plans to create an online red-light district by forcing all internet pornographers to use sites ending ".xxx" have been dumped after Icann, the American body that controls the internet, judged them unmanageable.

The decision comes as a blow to Stuart Lawley, president of .xxx's sponsoring organisation ICM Registry, which has spent millions of dollars during a six-year campaign to create a dedicated domain for the porn industry.

If he had been successful, Mr Lawley could have expected to control the rights to some of the world's most lucrative internet assets.

ICM, which called for the Icann board to vote on .xxx overnight after months of stalling, is now considering taking legal action, sources familiar with the matter said.

The 4 million websites that make up the global online porn industry are expected to generate as much as £6 billion in revenues this year, according to analysts. As many as two in five internet users visit such sites at least once a month, according to market researcher comScore.

ICM, which would have charged each .xxx site $60 (£32) a year in registration fees, had argued the domain would have forced the porn industry to clean up its act with websites having to abide by a set of rules that would have outlawed malicious behaviour such as sending spam e-mails.

But the plans proved to be highly contentious in Washington, where conservative groups feared they would "legitimise" pornography.

Icann postponed making a final decision on .xxx in August after the White House stepped in just days before a scheduled meeting to discuss the plans. There were also rumours that Viviane Reding, the EU Information Commissioner, had privately demanded the plans be vetoed.

Anti-porn advocates - including influential US Christian groups - had argued that sites would keep their current ".com" addresses and that the ".xxx" name would only make porn more accessible. Pornographers, meanwhile, argued that the .xxx system would pave the way for some governments to ban their businesses.

Larry Flynt, the founder of Hustler magazine is expected to write to Icann today to back the body's decision to oppose the .xxx plans.

However, Jonathan Robinson, chief operating officer for NetNames, a company that manages internet addresses for a third of the FTSE 100, said: "Icann seems to be hiding from the truth: that there is a very significant amount of adult content on the internet.

"A .xxx domain could form part of an elegant solution for segregating it. But Icann, not for the first time, has avoided making a controversial move. Rather, it seems bent on providing meaningless suffixes such as ‘.museum’, which I’ve never seen used."

Paul Twomey, the Icann chief executive, said that while the body was "certainly very conscious" of the controversy generated by the plans, its decision "was not driven by a political consideration".

It is understood that Icann’s governing board, which rejected the plans 9-5 in a vote after a debate carried out behind closed doors, was not willing to undertake responsibility for regulating online pornography. Under the unfinalised plans, the body could have been held responsible to harmonising laws across the world, a task widely regarded as impossible.

The porn industry trade group, Free Speech Coalition, believes a domain name for children-friendly sites would be more appropriate.

The decision from Icann, which has faced fierce criticism for allegedly being manipulated by Washington, reverses its preliminary approval in June to create a ".xxx'' domain name for voluntary use by the adult entertainment industry.

Should all pornography sites have their own distinct ".xxx" addresses? Have you say here.

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