The coal company decided to withdraw from the project application following a review of the latest technical studies, Centennial spokeswoman Katie Brassil said.

"Looking at the technical studies, which take in a broad range of things, it became clear the economic viability of actually pursuing the project had just been eaten away," she said.

"Like any business you have to look at something and see if it's worth pursuing in this case it wasn't."

In April, Centennial lodged a project application, including a preliminary Environmental Assessment, with the Department of Planning for the proposed auger mine.

The mine had been unpopular with residents, including former pop star and Fassifern resident John Paul Young, who claimed Centennial had planned open-cut mining at the site.

Open-cut mining is banned in Lake Macquarie.

The coal company denied the claim, saying it was going to be a solely underground operation.

United Residents Group for the Environment of Lake Macquarie president Peter Morris said locals were pleased Centennial had "pulled the plug".

"It's fantastic news to hear," he said.

The Olstan project was intended to supply coal to local power stations but the company said it would now investigate options to stop any potential shortfalls.