The DoI is to withdraw its planning application for new flood defences and highway improvements along West Quay in Ramsey.
It said the decision follows serious concerns raised locally about the scale and impact of the design.
Plans for a new wall were submitted for a 1.3-metre-high concrete flood wall, stretching from Bowring Road to Neptune Street.
However, residents, business owners and politicians said it failed to address issues, including a drop in parking spaces, that was criticised under previous plan.
Minister Tim Crookall said: “While we remain fully committed to protecting homes and businesses in Ramsey from the risk of flooding.
“There have been serious concerns about the height of the wall that had been proposed and the number of parking spaces that would have been lost as a result.
“I have listened carefully to the views of the community. It is clear that the current design whilst offering essential flood protection to the town, is not the right solution for West Quay, and therefore we are withdrawing the scheme in its present form.”
The Department will now start consulting again to find a solution and says it will work with Ramsey Commissioners to assess options that balance effective flood mitigation with the needs and character of the area.