The plan was rejected by three continental confederations with powerhouse UEFA insisting its nations would boycott FIFA events.
FIFA's backdown was immediately welcomed by Australia and its parent body, the Asian Football Confederation.
In a statement released early on Saturday, FIFA president Gianni Infantino said: "The FIFA Forward Enterprise project was intended to provide a basis for further strengthening our FIFA Member Associations and our sport worldwide, especially in those countries where support is most needed.
"And more so, as we said from the outset, to do this only if a majority of the FIFA Member Associations were in support and always subject to a consultation process with them, the FIFA Council, the Confederations and wider stakeholders.
"Having listened carefully to all the views, it has become clear that the project has created divisions of a nature that, regardless of the level of support, are no longer in the interest of the objective set out in the first place.
"Our purpose has always been - and will always be - to unite and improve.
"As a result, this proposal will not proceed.
"Moving forward, my intent is to bring all interested parties back together in the coming days and weeks in the spirit of shared interest in our game, and with the objective to continue growing football everywhere, particularly in those countries that mostly need our support."
Infantino had proposed creating a $20-billion subsidiary, FIFA Forward Enterprise (FFE), to run the World Cup and its other events, with a stake of up to 20 per cent to be offered to external investors.
Thrive Eternal, a fund run by Thrive Capital, which is founded by Joshua Kushner, was expected to lead the proposed investor group, FIFA said. Joshua is the brother of Jared Kushner, US president Donald Trump's son-in-law.
UEFA's 55-member nations agreed to boycott the World Cup and all other FIFA competitions over Infantino's plan.
North America's CONCACAF and the Asian Football Confederation - Australia's parent body - also opposed it.
"Some things are simply too important to sell," UEFA said in a statement. "The FIFA World Cup belongs to football. It always will. And so long as Europe has a voice, it will never be for sale."
Football Australia chairman Anter Isaac welcomed the FIFA decision to withdraw its proposal. Â
Football has never stood still, nor should it," said Isaac in a statement. "Some principles, however, should never change. Integrity. Independence. Good governance. Transparency. Meaningful consultation. Due process."
AFC president Shaikh Salman bin Ebrahim Al Khalifa also welcomed FIFA's decision.
"The future of global football must always be shaped through proper consultation, collective dialogue and respect for the established governance structures of our game," he said.
"The AFC stands ready to support any initiative that strengthens the unity of the football family, contributes to the continued growth of the game globally and delivers meaningful benefits to all stakeholders."
Infantino's senior adviser, Carlos Cordeiro, resigned on Friday and urged other senior FIFA staff to speak out.
"I cannot stand by while FIFA considers selling a stake in the World Cup," Cordeiro said in a statement.
FIFA's chief operating officer Kevin Lamour said staff were "deceived" by Infantino, describing the proposal as a "project of one person".
"Our mission ... is to serve football. Not to serve the personal interests of a person who, unfortunately, believes he embodies FIFA when he is supposed to be at its service," he wrote in a statement shared with the Associated Press.
with agencies
