In a rare and high-profile victory for China's environmental movement, the project at Tiger Leaping Gorge on the upper reaches of the Yangtze river was scrapped during a meeting in the provincial capital, Kunming.
But it is unlikely that hydropower construction will come to a halt in what remains a remote and energy-poor region. Officials have turned their attention to sites further upstream and are proceeding with several other giant dams, partly to meet commitments to supply power to the eastern coast and to neighbouring countries such as Vietnam and Burma.
Yu Xiaogang, a campaigner with the local Green Watershed organisation, said profits of national power companies - rather than the economic development of Yunnan - were the driving force behind the carving up of the region's rivers.
The government says its hydropower plans for the upper reaches of the Yangtze are designed to counteract some of the worst consequences of industrialisation that have left filth and debris floating in the lower and middle reaches.
The damming of the Jinsha, or upper reaches, they admit, is one way of cutting off the silt that surges down the Yangtze, threatening to incapacitate the politically important Three Gorges Dam project and cripple local shipping routes.
Local officials also believe that dam construction in the region will make it easier to flush out the chemical poison that has accumulated in the Dianchi lake, a major source of water for the province but now the dumping ground for the dozens of power plants, steel smelters and cement factories that have been built in recent years on its western banks.
After years of rampant hydropower construction - likened by one expert to the construction of "backyard" steel smelters during the disastrous Great Leap Forward of the 50s - activists hope that the age of big dams is coming to an end.
In 2005 Premier Wen Jiabao intervened to block an unpopular plan to build 13 dams and hydropower plants on the untouched Nu river, a Unesco-protected site also in Yunnan, saying that the plan was "unscientific".
But despite recent coverage of the potential catastrophes that surround China's biggest and most notorious dam at the Three Gorges, the government has fought back hard on the issue of hydropower.
While admitting that river banks have collapsed, that biodiversity has dwindled and that many displaced communities have failed to thrive, the government has said that the benefits of construction still far outweigh the risks.
It has also pressed on with the launch of the country's second largest hydropower plant, known as the Xiluodu, also on the Jinsha river.
After crippling power shortages in 2004 and 2005 China's leaders approved a capacity expansion programme to take full advantage of the country's resources. That primarily meant coal, which provides at least 70% of China's energy needs, but also water - and the damming of previously undeveloped rivers in the south-west. China's capacity has doubled in six years to more than 700 gigawatts, and since 2005 it has risen by 100 gigawatts a year.