Regional newspapers and commercial radio stations today welcomed the rejection of BBC plans for a network of local video news websites.

The BBC Trust said the £68 million proposal would not improve public services enough to justify either the use of licence fee funds or the negative impact on commercial media.

After a detailed review it found the plans for 65 enhanced websites across the UK would not reach enough of the people the BBC is currently failing to serve well enough.

Trustees instead challenged BBC managers to improve their existing local TV and radio services.

A separate study by Ofcom into the effect of the proposals concluded they would have a "significant negative impact" on commercial media outlets like regional newspapers.

The communications regulator found annual revenues of commercial providers would drop by up to 4% if the BBC's plans went ahead.

BBC Trust chairman Sir Michael Lyons said: "It is clear from the evidence that, although licence fee payers want better regional and local services from the BBC, this proposal is unlikely to achieve what they want.

"We also recognise the negative impact that the local video proposition could have on commercial media services which are valued by the public and are already under pressure.

"We believe the BBC's priority should be improving the quality of existing services."

The trust, which is the BBC's governing body, is not due to make its final decision on the local video services until February

But its firm statement today made it clear that the plan will not receive its backing.

BBC Director-General Mark Thompson indicated that the corporation would not submit an alternative version of the proposal for "a good long while".

Addressing an Ofcom conference today, he said: "We should move on and not return to it for the foreseeable future."

A BBC spokesman said: "In its ruling this morning, the BBC Trust challenged BBC management to instead improve its existing services to ensure audiences across the UK see a better reflection of their local communities.

"That is a challenge we will pursue with vigour. We will consider a range of options for how we can best achieve this and will return to the Trust in due course."

The BBC had argued the websites would be distinctive and would strengthen its news coverage for local communities.

They would not compete with commercial providers offering services like dating, job and property listings, cars and holidays, the corporation said.

The proposal - estimated to cost £68 million by 2012/13 - envisaged websites with on-demand videos, primarily of news and sport but also including weather and user-generated content.

The content would be free and without adverts, and the BBC would make most of it available to local news sites.

There would be 60 websites based largely on the BBC's existing local services, with the five sites in Wales available in both English and Welsh.

Regional newspapers criticised the plans, saying they would represent unfair public-funded competition.

The Newspaper Society, which represents Britain's regional and local media, was strongly opposed to the idea.

Society director David Newell said today: "We are pleased that the BBC Trust and Ofcom have responded to the industry's concerns and rejected the BBC local video plans for the time being.

"This is a proposal which the BBC should never have made and would have severely reduced consumers' media choice and the rich tapestry of local news and information provision in the UK."

RadioCentre, the industry body for commercial radio stations, also welcomed the trust's stance.

Chief executive Andrew Harrison said: "Local communities already receive valuable local news and information from 320 commercial radio stations spread across the UK.

"The introduction of a publicly funded service of this nature would have had a devastating effect on these small local businesses."

But others said the trust's decision was a missed opportunity to improve local news and create new jobs.

National Union of Journalists general secretary Jeremy Dear said: "Against a significant decline in local journalism, here was an opportunity to take a small step in the opposite direction by actually enhancing local news provision."

Gerry Morrissey, leader of the broadcasting workers' union Bectu said 700 new jobs would have been created by the new venture.

He also claimed that the scandal about the lewd messages left on actor Andrew Sachs's answerphone by Russell Brand and Jonathan Ross had influenced today's decision.

"We are extremely disappointed because this would have created 700 jobs, some of which could have gone to staff affected by the latest restructuring," he said.

"We do not believe this would have damaged other broadcasters."