“Further work is needed” before the Welsh Government is happy to underwrite plans for the £375m Circuit of Wales.
Economy Secretary Ken Skates told AMs that at a time of “significant economic uncertainty” due to Brexit, it could not back the plans for the race track in Ebbw Vale in their current form.
He said he wanted to see 50% of the finance and 50% of the underwriting to come from the private sector.
Mr Skates said the risk to the taxpayer in the current form was “unacceptable”.
Shortly before the announcement, he met the company, which accepted the principle.
Mr Skates said, including guarantees and council loans, the latest proposal involved Welsh Government underwriting about 75% of the total cost of the project, with councils underwriting a further 8%.
“Unfortunately, despite the efforts of the project backers, this leaves only around 17% of the risk being taken by the private sector,” he said.
“My door remains firmly open and I have urged them to revise their bid in such a way where the private sector takes more of the risk in order for this project to be taken forward.
“We need to see at least 50% of this project funded and 50% of the risk underwritten by the private sector to justify value for money for Welsh Government and the public purse.”
Conservative economy spokesman Russell George said the decision was “disappointing” and “regrettable”.
Plaid Cymru’s finance and economy spokesman Adam Price asked why negotiations were taking place “with the clock ticking” when the proposal had been on the minister’s desk for many weeks.
“Isn’t it true that his own government’s due diligence shows there is an almost negligible scenario where the guarantee will be called in?
“Because it’s a strong project, it’s a strong business case, in which case all this is academic and he should get on with the job and actually support this proposal in an area of Wales which is crying out for jobs and leadership.”
Earlier, the developers said Blaenau Gwent and Monmouthshire councils were “fully on board” with the plan which would have seen them provide loans of £90m.
On Monday, Monmouthshire council leader Peter Fox said there was no guarantee the local authorities would agree to that.
CoW chief executive Martin Whitaker said: “We have a fantastic working relationship with the councils.
“Blaenau Gwent stands to benefit significantly, as does Monmouthshire. They’ve been very supportive.”
If the Welsh Government had agreed to underwrite the project, it would not have been liable for the money until after it was completed.
In return, it would have been paid £3.8m a year for 33 years.
In April, Mr Skates’s predecessor Edwina Hart rejected a previous plan which involved the taxpayer underwriting the entire cost.
She said there was a “significant question around the viability of the project” and an “unacceptable risk” to the government.
But she said a guarantee of 80% of the total value of the project “may have reduced our risk to an acceptable level”.
On Monday, Mr Whitaker told BBC Radio Wales he was confident the Welsh Government would support the new proposal.
“We’re ready to go and we’re certain the government will give us that confidence and certainty,” he said.