Named after the local authority that introduced the policy in 2003, the Merton Rule required any new building to reduce its carbon emissions by 10 per cent by using on-site renewable energy sources.
The decision has been welcomed by the BPF, which believes pumping money into the actual efficiency of the building itself is 'greener' than using on-site renewables, which can be expensive and less effective.
It brings to an end a long-running feud between the housebuilders, the BPF and the government, with the latter having resolutely backed the Merton Rule in an attempt to be seen as pro-sustainability.
The government U-turn will result in a dramatic drop in the use of on-site renewables in new builds.
A BPF statement said: 'Requiring a building to generate 10-20 per cent of its energy through onsite renewables - as prescribed under the Merton Rule - is a far less efficient way of cutting carbon than by investing in the actual energy efficiency of buildings.
'In London especially, there is little wind, and similarly, the carbon saving of small-scale solar panels is simply not cost-effective.
'In many cases it would be much better for buildings to purchase green energy from off-site sources able to generate low-carbon emitting energy on a larger, more efficient scale.'
For more information on the Merton Rule visit www.themertonrule.org