The firm, which rose to fame two years ago when its Tiree Ferry Terminal was shortlisted for the Stirling
Prize, won the Harbourmaster's Building and Footbridge competition in Paddington in June, seeing off Ian McChesney, Jestico + Whiles, Space Craft and David Adjaye.
Westminster Council gave an unofficial thumbs down to the plans, which form part of Mossessian & Partners' vast Merchant Square development.
The client then asked the practice to rethink its designs, triggering a major falling out. There is also understood to have been a disagreement about the fees owed to the Edinburgh practice.
Director Charlie Sutherland said he was particularly disappointed because the planners had declined to become involved with the competition and the scheme's development.
'The planners dug their heels in,' he said. 'We were annoyed by their disengagement and their lack of involvement.
'They had the opportunity to get involved with the early stages but chose not to. Then the client met with the planners before we had a chance to meet them, which was disappointing,' Sutherland added.
But a sympathetic source close to the competition and the project confirmed that Sutherland Hussey's designs for the Harbourmaster's Building had let them down.
'We were very keen and it was great when we first saw it, because of its approach to the landscape,' they said. 'But the later CGIs were not that great, and the planners didn't like it.'
A PDC spokesman confirmed that its relationship with Sutherland Hussey was no longer reconcilable.
'They did win the competition but the relationship [between architect and client] broke down to the point where there was no reason to ask them to redesign,' he said.