The flats would have made way for a "breakthrough" between Waverley Station and the Canongate, via a new public square.

But the proposal was attacked by residents and heritage watchdogs, who feared it would spoil the unique feel of one of Edinburgh's most historic quarters.

London-based developer Mountgrange has now withdrawn its planning application for the demolition work.

Instead it hopes to connect the new public square to the Canongate through a series of arches, safeguarding the upper levels of the MacRae tenements.

Manish Chande, chief executive of Mountgrange, said: "We have taken the past two months to listen to professional experts, interested parties, elected representatives and local people themselves.

"Through our Caltongate liaison group and visitor centre, we have invested more than three years in community and stakeholder consultation and we have always said that real changes to the applications could be made as a result of this process.

"Our commitment has always been to deliver a development that will regenerate a vital area of Edinburgh's Old Town for the benefit of the local community and Edinburgh as a whole."

Last year, Mountgrange drew up an alternative to their original plans, which raised the option of a new pend between the Royal Mile and the planned square.

The developer did not withdraw its original planning application at that time, however, and said it would allow the council to decide which option it preferred.

But under pressure from residents, Historic Scotland and local MSP Sarah Boyack, Mountgrange has now cancelled the application for a full breakthrough.

It is understood the breakthrough application on the Canongate triggered more than 300 objections to the council.

The alternative planning application is due to be discussed by city councillors next month.

Mr Chande added: "Although we believe that our original planning application would have been the best option to enable the maximum level of investment and job creation, we recognise there is a balance to be struck when dealing with heritage concerns.

"For that reason, and given the discussions we have had over the last two months, we have decided to withdraw the original application. Only the alternative application that promotes a partial height break will now go forward to the planning hearing on February 6."

Among the proposal's critics were the Cockburn Association, the Edinburgh World Heritage Trust and the Architectural Heritage Society of Scotland.

Mr Chande said he also received a letter from Labour MSP Ms Boyack shortly before Christmas, urging the company to withdraw the original application.

He said he had written to Ms Boyack to confirm he intended to withdraw the original application, and would shortly notify the council of the decision.

The concession is likely to be seen as a partial victory for campaigners, but the £300 million scheme still includes proposals to demolish two listed buildings to make way for a hotel and a conference centre.

The plans are therefore still set to attract fierce protests when next month's meeting takes place.

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